By Jason Salmon, Senior Vice President, Kay Properties & Investments, LLC
Real estate has long been a popular asset used to build generational family wealth. One of the key tax advantages to passing real estate property to heirs is that those recipients benefit from a “step-up in basis.” That step-up is much like hitting the reset button on a property’s current market value. This step-up in value alone can represent a huge windfall for anyone who inherits a property that has seen even modest appreciation.
Consider a matriarch who bought an apartment building in the 1980s for $1.0 million. Thanks to careful maintenance and upkeep, along with a good location, that property is now worth $10 million. If the owner were to sell the property, he or she would face a hefty tax liability on the capital gain upon sale. Instead, the owner decides to put that property in his or her will to be inherited equally by his or her grandchildren. The grandchildren also inherit that step-up to the current appraised value at the time of the owner’s death, allowing them to avoid paying tax on capital gain should the property then be sold.