§1014 — Basis of property acquired from a decedent

Statute Text — 26 U.S.C. §1014

Treasury Regulations

• Treas. Reg. §1.1014-0Table of contents Show full text ▾ Collapse ▴

  This section lists the captions contained in §§ 1.1014-1 through 1.1014-10.

  (a) General rule.

  (b) Scope and application.

  (c) Property to which section 1014 does not apply.

  (d) Applicability date.

  (a) In general.

  (b) Property acquired from a decedent dying after December 31, 1953.

  (1) In general.

  (2) Rules for the application of paragraph (b)(1) of this section.

  (3) Exceptions to application of this paragraph.

  (c) Special basis rules with respect to certain property acquired from a decedent.

  (1) Stock or securities of a foreign personal holding company.

  (2) Spouse's interest in community property of decedent dying after October 21, 1942, and on or before December 31, 1947.

  (a) Fair market value.

  (b) Property acquired from a decedent dying before March 1, 1913.

  (c) Reinvestments by a fiduciary.

  (d) Reinvestments of property transferred during life.

  (e) Alternate valuation dates.

  (a) In general.

  (b) Multiple interests.

  (c) Records.

  (d) Effective/applicability date.

  (a) Sale or other disposition of a life interest, remainder interest, or other interest in property acquired from a decedent.

  (b) Sale or other disposition of certain term interests.

  (1) In general.

  (2) Effective/applicability date.

  (c) Sale or other disposition of a term interest in a tax-exempt trust.

  (1) In general.

  (2) Tax-exempt trust defined.

  (3) Taxable beneficiary defined.

  (4) Effective/applicability date.

  (d) Illustrations.

  (a) In general.

  (b) Multiple interests in property described in section 1014(b)(9) and acquired from a decedent prior to his death.

  (c) Adjustments for deductions allowed prior to the decedent's death.

  (a) In general.

  (b) Portion of property acquired from decedent before his death included in decedent's gross estate.

  (1) In general.

  (2) Example.

  (c) Estate tax valuation date.

  (d) Examples.

  (a) Consistent basis requirement.

  (1) General rule.

  (2) Initial basis in consistent basis property and effect of basis adjustments.

  (3) Duration of consistent basis requirement.

  (b) Final value and reported value.

  (1) Final value.

  (2) Reported value if no final value yet determined.

  (3) Special rules.

  (c) Consistent basis property.

  (1) Property subject to the consistent basis requirement.

  (2) Property excepted from or not subject to the consistent basis requirement.

  (d) Definitions.

  (e) Examples.

  (f) Applicability date.

• Treas. Reg. §1.1014-0(a)Consistent basis requirement. Show full text ▾ Collapse ▴

  Consistent basis requirement.

  (1) General rule.

  (2) Initial basis in consistent basis property and effect of basis adjustments.

  (3) Duration of consistent basis requirement.

• Treas. Reg. §1.1014-0(b)Final value and reported value. Show full text ▾ Collapse ▴

  Final value and reported value.

  (1) Final value.

  (2) Reported value if no final value yet determined.

  (3) Special rules.

• Treas. Reg. §1.1014-0(c)Consistent basis property. Show full text ▾ Collapse ▴

  Consistent basis property.

  (1) Property subject to the consistent basis requirement.

  (2) Property excepted from or not subject to the consistent basis requirement.

• Treas. Reg. §1.1014-0(d)Definitions. Show full text ▾ Collapse ▴

  Definitions.

• Treas. Reg. §1.1014-0(e)Examples. Show full text ▾ Collapse ▴

  Examples.

• Treas. Reg. §1.1014-0(f)Applicability date. Show full text ▾ Collapse ▴

  Applicability date.

• Treas. Reg. §1.1014-1Basis of property acquired from a decedent Show full text ▾ Collapse ▴

  (a) General rule. The purpose of section 1014 is, in general, to provide a basis for property acquired from a decedent that is equal to the value placed upon such property for purposes of the federal estate tax. Accordingly, the general rule is that the basis of property acquired from a decedent is the fair market value of such property at the date of the decedent's death, or, if the decedent's executor so elects, at the alternate valuation date prescribed in section 2032, or in section 811(j) of the Internal Revenue Code (Code) of 1939. However, the basis of property acquired from certain decedents who died in 2010 is determined under section 1022, if the decedent's executor made an election under section 301(c) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Public Law 111-312 (124 Stat. 3296, 3300 (2010)). See section 1022. Property acquired from a decedent includes, principally, property acquired by bequest, devise, or inheritance, and, in the case of decedents dying after December 31, 1953, property required to be included in determining the value of the decedent's gross estate under any provision of the Code of 1954 or the Code of 1939. For certain property acquired from a decedent, the initial basis of the property must not exceed the property's final value for Federal estate tax purposes. See section 1014(f) and § 1.1014-10 for rules relating to the consistent basis requirement. The general rule governing basis of property acquired from a decedent, as well as other rules prescribed elsewhere in this section, shall have no application if the property is sold, exchanged, or otherwise disposed of before the decedent's death by the person who acquired the property from the decedent. For general rules on the applicable valuation date where the executor of a decedent's estate elects under section 2032, or under section 811(j) of the Code of 1939, to value the decedent's gross estate at the alternate valuation date prescribed in such sections, see § 1.1014-3(e).

  (b) Scope and application. With certain limitations, the general rule described in paragraph (a) of this section is applicable to the classes of property described in paragraphs (a) and (b) of § 1.1014-2, including stock in a DISC or former DISC. In the case of stock in a DISC or former DISC, the provisions of this section and §§ 1.1014-2 through 1.1014-8 are applicable, except as provided in § 1.1014-9. Special basis rules with respect to the basis of certain other property acquired from a decedent are set forth in paragraph (c) of § 1.1014-2. These special rules concern certain stock or securities of a foreign personal holding company and the surviving spouse's one-half share of community property held with a decedent dying after October 21, 1942, and on or before December 31, 1947. In §§ 1.1014-1 to 1.1014-6, inclusive, and § 1.1014-10, whenever the words property acquired from a decedent are used, they also mean property passed from a decedent, and the phrase person who acquired it from the decedent includes the person to whom it passed from the decedent. The consistent basis rules in § 1.1014-10 apply to property subject to the consistent basis requirement, as described in § 1.1014-10(c)(1). For property subject to the consistent basis requirement, the rules in § 1.1014-10 modify the rules set forth in paragraphs (a) and (c) of this section and in §§ 1.1014-2 through 1.1014-9.

  (c) Property to which section 1014 does not apply. Section 1014 has no application to property that constitutes a right to receive an item of income in respect of a decedent under section 691.

  (d) Applicability date. This section applies after September 17, 2024. For rules on and before September 17, 2024, see § 1.1014-1 as contained in 26 CFR part 1 revised as of January 19, 2017.

• Treas. Reg. §1.1014-1(a)General rule. Show full text ▾ Collapse ▴

  General rule. The purpose of section 1014 is, in general, to provide a basis for property acquired from a decedent that is equal to the value placed upon such property for purposes of the federal estate tax. Accordingly, the general rule is that the basis of property acquired from a decedent is the fair market value of such property at the date of the decedent's death, or, if the decedent's executor so elects, at the alternate valuation date prescribed in section 2032, or in section 811(j) of the Internal Revenue Code (Code) of 1939. However, the basis of property acquired from certain decedents who died in 2010 is determined under section 1022, if the decedent's executor made an election under section 301(c) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Public Law 111-312 (124 Stat. 3296, 3300 (2010)). See section 1022. Property acquired from a decedent includes, principally, property acquired by bequest, devise, or inheritance, and, in the case of decedents dying after December 31, 1953, property required to be included in determining the value of the decedent's gross estate under any provision of the Code of 1954 or the Code of 1939. For certain property acquired from a decedent, the initial basis of the property must not exceed the property's final value for Federal estate tax purposes. See section 1014(f) and § 1.1014-10 for rules relating to the consistent basis requirement. The general rule governing basis of property acquired from a decedent, as well as other rules prescribed elsewhere in this section, shall have no application if the property is sold, exchanged, or otherwise disposed of before the decedent's death by the person who acquired the property from the decedent. For general rules on the applicable valuation date where the executor of a decedent's estate elects under section 2032, or under section 811(j) of the Code of 1939, to value the decedent's gross estate at the alternate valuation date prescribed in such sections, see § 1.1014-3(e).

• Treas. Reg. §1.1014-1(b)Scope and application. Show full text ▾ Collapse ▴

  Scope and application. With certain limitations, the general rule described in paragraph (a) of this section is applicable to the classes of property described in paragraphs (a) and (b) of § 1.1014-2, including stock in a DISC or former DISC. In the case of stock in a DISC or former DISC, the provisions of this section and §§ 1.1014-2 through 1.1014-8 are applicable, except as provided in § 1.1014-9. Special basis rules with respect to the basis of certain other property acquired from a decedent are set forth in paragraph (c) of § 1.1014-2. These special rules concern certain stock or securities of a foreign personal holding company and the surviving spouse's one-half share of community property held with a decedent dying after October 21, 1942, and on or before December 31, 1947. In §§ 1.1014-1 to 1.1014-6, inclusive, and § 1.1014-10, whenever the words property acquired from a decedent are used, they also mean property passed from a decedent, and the phrase person who acquired it from the decedent includes the person to whom it passed from the decedent. The consistent basis rules in § 1.1014-10 apply to property subject to the consistent basis requirement, as described in § 1.1014-10(c)(1). For property subject to the consistent basis requirement, the rules in § 1.1014-10 modify the rules set forth in paragraphs (a) and (c) of this section and in §§ 1.1014-2 through 1.1014-9.

• Treas. Reg. §1.1014-1(c)Property to which section 1014 does not apply. Show full text ▾ Collapse ▴

  Property to which section 1014 does not apply. Section 1014 has no application to property that constitutes a right to receive an item of income in respect of a decedent under section 691.

• Treas. Reg. §1.1014-1(d)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. This section applies after September 17, 2024. For rules on and before September 17, 2024, see § 1.1014-1 as contained in 26 CFR part 1 revised as of January 19, 2017.

• Treas. Reg. §1.1014-10Basis of property acquired from a decedent must be consistent with property's Federal estate tax value Show full text ▾ Collapse ▴

  (a) Consistent basis requirement—(1) General rule. The consistent basis requirement is the requirement that the initial basis in certain property be equal to or less than the property's final value as determined under paragraph (b)(1) of this section or, if no final value has yet been determined, the property's reported value for Federal estate tax purposes as described in paragraph (b)(2) of this section. The property subject to the consistent basis requirement is referred to in this section as consistent basis property and is described in paragraph (c)(1) of this section.

  (2) Initial basis in consistent basis property and effect of basis adjustments. The initial basis in consistent basis property is the final value of the property, as determined under paragraph (b)(1) of this section, and, until the final value of this property is determined, the property's initial basis is the reported value, as described in paragraph (b)(2) of this section. The initial basis in consistent basis property may be adjusted pursuant to the operation of section 1014 or other provisions of the Internal Revenue Code (Code) governing basis, as applicable, and those adjustments will not violate the consistent basis requirement in paragraph (a)(1) of this section. For example, the initial basis in consistent basis property may be adjusted for gain recognized by the estate upon distribution of the property and for post-death capital improvements and depreciation. It also may be adjusted in the manner provided in section 1014(d) in the case of DISC stock and in the manner provided under subchapter K or S of chapter 1 of the Code, respectively, in the case of an interest in a partnership or S corporation.

  (3) Duration of consistent basis requirement. The consistent basis requirement applies as long as the initial basis in consistent basis property is related, in whole or in part, to the property's final value, as determined under paragraph (b)(1) of this section, or, if applicable, the property's reported value, as determined under paragraph (b)(2) of this section. Therefore, regardless of the number of successive owners, the consistent basis requirement continues to apply until the entire property is sold, exchanged, or otherwise disposed of in one or more transactions that result in a recognition event for income tax purposes (whether or not resulting in a gain or loss) or until the entire property becomes includible in another decedent's gross estate. The consistent basis requirement applies whenever there is a taxable event with respect to the property, such as, but not limited to, a sale or exchange, depreciation, or amortization of the property. The expiration of the period of limitations on assessment for an income tax return that uses an incorrect basis in reporting a taxable event with respect to consistent basis property has no effect on the duty to determine basis under the rules of this section for purposes of reporting any subsequent taxable event with respect to the property if the consistent basis requirement continues to apply under the rule of this paragraph (a)(3).

  (b) Final value and reported value—(1) Final value. The final value of consistent basis property is its fair market value as finally determined for Federal estate tax purposes. That value is—

  (i) The value reported on an estate tax return filed with the IRS, once the period of limitations on assessment (see section 6501) of estate tax has expired without that value having been timely adjusted by the IRS; or

  (ii) The value determined or specified by the IRS that differs from the value reported on an estate tax return filed with the IRS and the value specified by the IRS for other included property, as defined in paragraph (d)(4) of this section, once the period of limitations on assessment applicable to the estate tax has expired without that value having been timely contested by the executor, as defined in paragraphs (d)(1) and (2) of this section, respectively; or

  (iii) The value determined in a written agreement with the IRS, (whether entered into in the course of the administrative proceedings between the estate and the IRS or after the commencement of litigation), once that written agreement has been executed by both the executor and the IRS and is binding on all parties (including, but not limited to, the executor, the IRS, and the beneficiaries); or

  (iv) The value determined by a court for the purpose of determining the estate tax liability of the estate, as defined in paragraph (d)(3) of this section, once the court's determination no longer can be appealed to any court.

  (2) Reported value if no final value yet determined—(i) In general. Prior to the determination of the final value in accordance with paragraph (b)(1) of this section, a taxpayer may not claim an initial basis in consistent basis property in excess of the property's value as reported on the Statement described in § 1.6035-1(c)(2) and required under § 1.6035-1 (as supplemented). This value is referred to in this section as the reported value. A value reported on a Statement (or a supplement to the Statement) that either reports a value from an estate tax return filed after the expiration of the period of limitations on assessment applicable to that return, or a value reported for property not reported on the estate tax return, is not a reported value for purposes of this section. See § 1.6035-1(d) regarding an executor's duty to supplement the Statement.

  (ii) Limit on reliance on Statement not reporting final value. If the final value of consistent basis property is determined (as described in paragraph (b)(1) of this section) before the expiration of the period of limitations on assessment for a taxpayer's income tax return that reports a taxable event with regard to the property, the taxpayer's reliance on a Statement (or a supplement to the Statement) that does not report the final value of the property may result in an income tax deficiency and underpayment. See, however, section 6664 and the corresponding regulations for rules relating to waivers of penalties for certain failures due to reasonable cause.

  (3) Special rules—(i) Property subject to debt. The final value or, if applicable, the reported value of property subject to recourse or non-recourse debt is determined based on the gross value of that property undiminished by the debt, regardless of whether the estate tax return reports the net value (equity of redemption value) of the property or separately reports the gross value of the property and the outstanding debt.

  (ii) Special use property. The final value or, if applicable, the reported value of special use property with regard to which a recapture event (described in section 2032A(c)(1)) has occurred is increased as provided in section 1016(c) if the qualified heir makes the election under section 1016(c) and pays the amounts required under that section.

  (c) Consistent basis property—(1) Property subject to the consistent basis requirement—(i) In general. Except as provided in paragraph (c)(2) of this section, consistent basis property is any property—

  (A) To which section 1014(a) applies;

  (B) That is included property, as defined in paragraph (d)(4) of this section, if the decedent's Federal estate tax return is filed after July 31, 2015, and any other property the basis of which is determined, in whole or in part, by reference to the basis of included property (for example, property acquired in a like-kind exchange or an involuntary conversion); and

  (C) Whose value increases the estate tax liability, as defined in paragraph (d)(3) of this section, that is payable after the application of allowable credits, as defined in paragraph (d)(5) of this section.

  (ii) Application. If the decedent's Federal estate tax return is filed on or before July 31, 2015, no included property and no other property described in paragraph (c)(1)(i) of this section is subject to the consistent basis requirement, even if the due date of that return is after July 31, 2015, or if one or more supplements to that return are filed with the IRS after July 31, 2015. If an estate tax liability is payable after the application of allowable credits, all property described in paragraphs (c)(1)(i)(A) and (B) of this section is considered property whose value increases the estate tax liability for purposes of paragraph (c)(1)(i)(C) of this section and, therefore, is subject to the consistent basis requirement, except as provided in paragraph (c)(2) of this section. If, after the application of allowable credits, no estate tax liability is payable, no such property is subject to the consistent basis requirement.

  (2) Property excepted from or not subject to the consistent basis requirement. Notwithstanding paragraph (c)(1) of this section, the following property either is excepted from or is not subject to the consistent basis requirement—

  (i) United States dollars (as defined in paragraph (d)(6) of this section).

  (ii) United States dollar-denominated demand deposits.

  (iii) Certificates of deposit denominated in United States dollars.

  (iv) Cash collateral denominated in United States dollars held by a third party to secure a liability (such as a deposit of purchase money or a security deposit).

  (v) Shares of a registered investment company priced in United States dollars that is a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270.2).

  (vi) Life insurance proceeds on the life of the decedent payable in a lump sum in United States dollars.

  (vii) Federal, State, and local tax refunds and other refunds payable entirely in United States dollars.

  (viii) Notes that are forgiven in full by the decedent upon death, whether or not denominated in United States dollars.

  (ix) Household and personal effects for which an appraisal is not required under § 20.2031-6(b) of this chapter.

  (x) Property the initial basis of which is not in any way determined with regard to or derived from the property's final value as determined under paragraph (b)(1) of this section or its reported value as determined under paragraph (b)(2) of this section, if applicable. Such property includes but is not limited to—

  (A) Annuity contracts subject to section 72 and amounts received as an annuity subject to section 72;

  (B) An interest in property that consists entirely of the right to receive an item of income in respect of a decedent as defined in section 691;

  (C) Amounts received under installment obligations arising from a transaction for which the installment method for determining gain under section 453 applies;

  (D) Appreciated property described in section 1014(e) that is acquired by the decedent within 1 year of death;

  (E) Stock of a passive foreign investment company subject to section 1296(i), but only if the basis of such stock is the adjusted basis in the hands of the decedent immediately before the decedent's death; and

  (F) Interests in and distributions from retirement plans and deferred compensation plans, including individual retirement arrangements as defined in sections 408 and 408A, that are expressed entirely in United States dollars.

  (xi) Any interest in property that qualified for an estate tax marital deduction under section 2056, 2056A, or 2106(a)(3) for which such a deduction was properly claimed, and/or any interest in property that qualified for an estate tax charitable deduction under section 2055 or 2106(a)(2) for which such a deduction was properly claimed, provided that the value of the decedent's entire interest in the included property is wholly deductible and equal to the total amount qualifying for those deductions.

  (xii) Property that represents the surviving spouse's one-half share of community property to which section 1014(b)(6) applies, regardless of whether this property is included property as defined in paragraph (d)(4) of this section.

  (xiii) Property the basis of which is adjusted in a manner similar to section 1014(a) on the occurrence of a taxable termination that occurs on the death of a trust beneficiary pursuant to section 2654(a)(2) (to the extent the property is not then includible in the gross estate of any person).

  (xiv) Any other property that is not described in paragraph (c)(1)(i) of this section or that is identified as excepted property in published guidance in the Federal Register or in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter).

  (d) Definitions. The following definitions apply for purposes of this section—

  (1) Contested. The term contested means to put at issue the value of property in a written communication to the IRS that identifies the specific property, states that the executor does not accept as correct the value of that property as determined or specified by the IRS, and provides the executor's claimed value for that property as determined in accordance with the requirements of section 2031, the corresponding regulations, and other applicable guidance. An issue cannot be contested by a general statement or written communication that does not include each of these specified elements.

  (2) Executor. The term executor includes any person described in section 2203, as expanded to include all persons required under section 6018(b) to file an estate tax return.

  (3) Estate tax liability. The term estate tax liability means the amount of tax imposed under chapter 11 of the Code (chapter 11).

  (4) Included property. The term included property means property the value of which is included in the value of the decedent's gross estate as defined in section 2031 or 2103. Generally, this refers to property whose value is reported on an estate tax return, but it also refers to property whose value otherwise is included in the total value of the gross estate (for example, during examination by the IRS) so that a final value is or will be determined for that property under chapter 11. However, solely for purposes of this section, included property does not refer to unreported property whose value is not reported on an estate tax return and whose value is not otherwise included in the value of the decedent's gross estate as finally determined for Federal estate tax purposes.

  (5) Allowable credits. The term allowable credits includes any credit against the estate tax liability allowable by any section of the Code or by reason of any treaty obligation of the United States, provided the estate qualifies for and properly claims the credit by complying with all applicable rules for claiming the credit. For instance, the prorated unified credit under section 2102(b)(3) is an allowable credit for qualifying estates if the estate files all necessary forms or statements required by the IRS to claim that credit.

  (6) United States dollars. The term United States dollars means the official currency of the United States. The term United States dollars includes physical bills and coins for which the value of each bill or coin is equivalent to the face amount of that bill or coin. This definition does not include other physical United States bills or coins with numismatic value because these bills and coins typically do not have a value equal to their face value.

  (e) Examples. The following examples illustrate the application of this section. In each case, the decedent D was a citizen of the United States, the estate does not elect the alternate valuation method under section 2032, and an estate tax liability is payable after the application of all allowable credits.

  (1) Example 1—(i) Final value determined by value on estate tax return. At D's death, D owned (among other assets) a private residence not subject to any debt. D's sole beneficiary is D's child C. The value of the residence is reported on the estate tax return at $300,000. The IRS accepts the return as filed and the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of D's residence is $300,000, and therefore, C's initial basis in the residence is $300,000. See paragraphs (a)(2) and (b)(1)(i) of this section.

  (ii) Adjustment of initial basis pursuant to other Code provisions. Several years later, C adds a master suite to the private residence at a cost of $45,000. Pursuant to section 1016(a), C's basis in the residence is increased by $45,000 to $345,000. Subsequently, C sells the residence to an unrelated third party for $450,000. C claims a basis in the residence of $345,000 and reports a gain of $105,000 ($450,000 less $345,000). C has complied with the consistent basis requirement, and C's adjustment to C's initial basis does not violate the consistent basis requirement. See paragraphs (a)(1) and (2) of this section.

  (2) Example 2—(i) Final value determined on examination. The facts are the same as in paragraph (e)(1)(i) of this section (Example 1) except that, on examination, the IRS adjusts the value of the residence to $290,000 and that value is not contested before the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of the residence is $290,000, and therefore, C's initial basis in the residence, before taking into account C's subsequent renovations, is $290,000. See paragraphs (a)(2) and (b)(1)(ii) of this section.

  (ii) Reported value if no final value yet determined and reliance on Statement required under § 1.6035-1. Prior to the determination of final value, C sells the residence for $375,000. C reports a gain of $75,000 on C's income tax return, relying on the reported value in a Statement required under § 1.6035-1 and claiming an initial basis of $300,000. C has complied with the consistent basis requirement because C did not claim an initial basis in the residence in excess of its reported value before the final value was determined. However, because C claimed an initial basis in the residence that exceeds the final value, C may have an income tax deficiency and underpayment for the year of the sale if the applicable period of limitations on assessment for C's income tax return has not expired when the final value is determined. See paragraphs (b)(2)(i) and (ii) of this section.

  (3) Example 3—(i) Final value determined by agreement. At D's death, D owned 50% of Partnership P, whose sole asset was a rental building with a fair market value of $10 million subject to non-recourse debt of $2 million. D's sole beneficiary is D's child C. The value of D's interest in Partnership P is reported on the estate tax return at $4 million (50% of ($10 million less $2 million)). On examination, the IRS timely adjusts the value of the partnership interest to $5.25 million and the executor of D's estate timely contests that value before the period of limitations on assessment of estate tax expires. Subsequently, the IRS and the executor of D's estate enter into a settlement agreement that provides that the value of D's interest in Partnership P for purposes of the estate tax is $4.5 million. For purposes of the consistent basis requirement applicable to C, the final value of the partnership interest is $4.5 million, and therefore, C's initial basis in the partnership interest is $4.5 million. See paragraphs (a)(2) and (b)(1)(iii) of this section.

  (ii) Adjustment of initial basis pursuant to other Code provisions. C's share of Partnership P's liabilities at the date of D's death is $1 million. Under section 742 of the Internal Revenue Code and § 1.742-1 of this part, C's basis in the partnership interest is $5.5 million ($4.5 million initial basis plus C's $1 million share of Partnership P's debt). C later sells the partnership interest for $5 million at a time when C's basis has not changed and C's share of the debt remains $1 million. Under section 752(d), C's amount realized on the sale includes $1 million for the reduction in C's share of partnership liabilities. Therefore, C's total amount realized is $6 million. C reports taxable gain of $0.5 million ($6 million amount realized less $5.5 million basis). C has complied with the consistent basis requirement because C did not claim an initial basis in the partnership interest that exceeds the final value of the interest, as determined under paragraph (b)(1) of this section, and C's adjustment of the initial basis in the partnership interest as reported does not violate the consistent basis requirement. See paragraphs (a)(1) and (2) of this section.

  (4) Example 4—(i) Final value determined by court decision. At D's death, D owned (among other assets) a rental property. D's sole beneficiary is D's child C. The value of the rental property is reported on the estate tax return at $1 million. On examination, the IRS determines the value of the rental property to be $1.5 million. A court subsequently determines that the fair market value of the rental property for purposes of the estate tax is $1.3 million and the court's decision becomes final. For purposes of the consistent basis requirement, the final value of the rental property is $1.3 million, and therefore, C's initial basis is $1.3 million. See paragraphs (a)(2) and (b)(1)(iv) of this section.

  (ii) Reliance on Statement required under § 1.6035-1 and duration of consistent basis requirement. After the estate tax return is filed and before the final value is determined, C receives a Statement required under § 1.6035-1 showing a reported value of $1 million for the rental property. C claims a depreciation deduction on the first income tax return C files after acquiring the property, relying on the reported value in the Statement required under § 1.6035-1. C has complied with the consistent basis requirement on that return because C did not claim an initial basis in the rental property in excess of its reported value before the final value was determined. C may claim a credit or refund of income tax that may result from the increased depreciation deduction based on the final value of the rental property, but only if the period of limitations for a claim for a credit or refund of income tax for that year has not expired. C must use the final value of $1.3 million to determine C's unadjusted basis in the rental property for all open taxable years. In this case and pursuant to section 1016(a)(2), C's adjusted basis is determined by reducing the rental property's final value of $1.3 million by the greater of the depreciation deductions allowed or allowable based on the final value of $1.3 million for all prior tax years (open and closed). See paragraphs (a)(3), (b)(2)(i) and (ii) of this section.

  (5) Example 5—Final value for property subject to debt. At D's death, D's gross estate includes a yacht valued at $750,000, subject to $150,000 non-recourse debt. D's sole beneficiary is D's child C. Pursuant to the rule in § 20.2053-7 of this chapter, the executor of D's estate reports the $600,000 net value of the yacht on the estate tax return ($750,000 less $150,000 debt) and claims no other deduction for the debt. The IRS accepts the return as filed and the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of the yacht is $750,000, and therefore, C's initial basis in the yacht is $750,000. See paragraph (b)(3) of this section.

  (6) Example 6—Included property subject to the consistent basis requirement. After exercising due diligence to discover estate assets, the executor of D's estate reports the value of all known property includible in D's gross estate on a timely filed estate tax return and pays the estate tax liability. During examination of the return, the IRS becomes aware of a piece of artwork in the possession of D's child C, the value of which is includible in D's gross estate but is not reported on the estate tax return. The value of the artwork for Federal estate tax purposes is $500,000. Pursuant to the examination, the IRS includes the value of the artwork in the value of D's gross estate, which causes an increase in D's estate tax liability. Neither the inclusion of the artwork in D's gross estate nor the value at which the artwork is included in D's estate is contested by the executor of D's estate before the period of limitation on assessment of estate tax expires. The artwork is subject to the consistent basis requirement and the final value of the artwork is $500,000. Therefore, C's initial basis in the artwork is $500,000. See paragraphs (a)(2) and (c)(1)(i) of this section.

  (7) Example 7—(i) Partially deductible property subject to the consistent basis requirement. Pursuant to a bequest in D's will, Trust is established and funded with certain property, the value of which is includible in the gross estate under section 2031. Trust is a charitable remainder annuity trust described in section 664(d)(1). Trust provides that, in each taxable year during the lifetime of D's surviving child C, the trustee must pay to C an annuity of 5% of the initial net fair market value of all property passing to Trust as finally determined for Federal estate tax purposes. Upon the death of C, the trustee must distribute all of the then principal and income of Trust to organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the trustee selects, in the trustee's sole discretion. Although the executor of D's estate properly claims an estate tax charitable deduction under section 2055(e)(2)(A) for the value of the remainder interest in Trust, D's estate has an estate tax liability after application of all allowable credits. The property passing to Trust is subject to the consistent basis requirement because the value of the property is included in D's gross estate, an estate tax liability is payable after the application of all allowable credits, and the property is not described in paragraph (c)(2) of this section (in particular, the property is not wholly deductible property within the meaning of paragraph (c)(2)(xi) of this section).

  (ii) Wholly deductible property not subject to the consistent basis requirement. The facts are the same as in paragraph (e)(7)(i) of this section (Example 7), except that the sole annuity beneficiary of Trust is D's surviving spouse S, and the executor of D's estate properly claims a deduction under section 2056(b)(8) for the value of S's annuity interest. Because the value of D's entire interest in the property passing to Trust qualified for either a charitable deduction under section 2055(e)(2) or a marital deduction under section 2056(b)(8), none of the property passing to Trust will be subject to the consistent basis requirement. See paragraph (c)(2)(xi) of this section.

  (iii) Property not wholly deductible property if the sum of marital and charitable deductions allowed for that property is less than the value of the decedent's entire interest in the property. At the time of D's death, D owned 80 shares of voting stock in a closely-held corporation that has 100 shares of voting stock outstanding. D's will directed the executor of D's estate to distribute 40 shares of D's stock to a marital trust and 40 shares of D's stock to a charitable trust. D's executor included the value of D's 80 shares of stock in D's gross estate at $8,000,000 for purposes of the estate tax. Because of discounts applicable in valuing each of the two blocks of only 40 shares of the stock, D's executor correctly claimed a charitable deduction under section 2055(e)(2) of only $3,000,000, and correctly claimed a marital deduction under section 2056(b)(7) of only $3,000,000. D's executor determined that an estate tax was due on D's estate after the application of all allowable credits. The IRS accepted the return as filed and the period of limitations on assessment of estate tax expired. The 40 shares of stock owned by charitable trust and the 40 shares of stock owned by marital trust are not wholly deductible property within the meaning of paragraph (c)(2)(xi) of this section and are subject to the consistent basis requirement.

  (f) Applicability date. This section applies to property described in paragraph (c)(1) of this section that is acquired from a decedent or by reason of the death of a decedent if the decedent's Federal estate tax return is filed after September 17, 2024.

• Treas. Reg. §1.1014-10(a)Consistent basis requirement—(1) General rule. Show full text ▾ Collapse ▴

  Consistent basis requirement—(1) General rule. The consistent basis requirement is the requirement that the initial basis in certain property be equal to or less than the property's final value as determined under paragraph (b)(1) of this section or, if no final value has yet been determined, the property's reported value for Federal estate tax purposes as described in paragraph (b)(2) of this section. The property subject to the consistent basis requirement is referred to in this section as consistent basis property and is described in paragraph (c)(1) of this section.

  (2) Initial basis in consistent basis property and effect of basis adjustments. The initial basis in consistent basis property is the final value of the property, as determined under paragraph (b)(1) of this section, and, until the final value of this property is determined, the property's initial basis is the reported value, as described in paragraph (b)(2) of this section. The initial basis in consistent basis property may be adjusted pursuant to the operation of section 1014 or other provisions of the Internal Revenue Code (Code) governing basis, as applicable, and those adjustments will not violate the consistent basis requirement in paragraph (a)(1) of this section. For example, the initial basis in consistent basis property may be adjusted for gain recognized by the estate upon distribution of the property and for post-death capital improvements and depreciation. It also may be adjusted in the manner provided in section 1014(d) in the case of DISC stock and in the manner provided under subchapter K or S of chapter 1 of the Code, respectively, in the case of an interest in a partnership or S corporation.

  (3) Duration of consistent basis requirement. The consistent basis requirement applies as long as the initial basis in consistent basis property is related, in whole or in part, to the property's final value, as determined under paragraph (b)(1) of this section, or, if applicable, the property's reported value, as determined under paragraph (b)(2) of this section. Therefore, regardless of the number of successive owners, the consistent basis requirement continues to apply until the entire property is sold, exchanged, or otherwise disposed of in one or more transactions that result in a recognition event for income tax purposes (whether or not resulting in a gain or loss) or until the entire property becomes includible in another decedent's gross estate. The consistent basis requirement applies whenever there is a taxable event with respect to the property, such as, but not limited to, a sale or exchange, depreciation, or amortization of the property. The expiration of the period of limitations on assessment for an income tax return that uses an incorrect basis in reporting a taxable event with respect to consistent basis property has no effect on the duty to determine basis under the rules of this section for purposes of reporting any subsequent taxable event with respect to the property if the consistent basis requirement continues to apply under the rule of this paragraph (a)(3).

• Treas. Reg. §1.1014-10(b)Final value and reported value—(1) Final value. Show full text ▾ Collapse ▴

  Final value and reported value—(1) Final value. The final value of consistent basis property is its fair market value as finally determined for Federal estate tax purposes. That value is—

• Treas. Reg. §1.1014-10(c)Consistent basis property—(1) Property subject to the consistent basis requirement—(i) In general. Show full text ▾ Collapse ▴

  Consistent basis property—(1) Property subject to the consistent basis requirement—(i) In general. Except as provided in paragraph (c)(2) of this section, consistent basis property is any property—

  (A) To which section 1014(a) applies;

  (B) That is included property, as defined in paragraph (d)(4) of this section, if the decedent's Federal estate tax return is filed after July 31, 2015, and any other property the basis of which is determined, in whole or in part, by reference to the basis of included property (for example, property acquired in a like-kind exchange or an involuntary conversion); and

  (C) Whose value increases the estate tax liability, as defined in paragraph (d)(3) of this section, that is payable after the application of allowable credits, as defined in paragraph (d)(5) of this section.

  (ii) Application. If the decedent's Federal estate tax return is filed on or before July 31, 2015, no included property and no other property described in paragraph (c)(1)(i) of this section is subject to the consistent basis requirement, even if the due date of that return is after July 31, 2015, or if one or more supplements to that return are filed with the IRS after July 31, 2015. If an estate tax liability is payable after the application of allowable credits, all property described in paragraphs (c)(1)(i)(A) and (B) of this section is considered property whose value increases the estate tax liability for purposes of paragraph (c)(1)(i)(C) of this section and, therefore, is subject to the consistent basis requirement, except as provided in paragraph (c)(2) of this section. If, after the application of allowable credits, no estate tax liability is payable, no such property is subject to the consistent basis requirement.

  (2) Property excepted from or not subject to the consistent basis requirement. Notwithstanding paragraph (c)(1) of this section, the following property either is excepted from or is not subject to the consistent basis requirement—

• Treas. Reg. §1.1014-10(d)Definitions. Show full text ▾ Collapse ▴

  Definitions. The following definitions apply for purposes of this section—

  (1) Contested. The term contested means to put at issue the value of property in a written communication to the IRS that identifies the specific property, states that the executor does not accept as correct the value of that property as determined or specified by the IRS, and provides the executor's claimed value for that property as determined in accordance with the requirements of section 2031, the corresponding regulations, and other applicable guidance. An issue cannot be contested by a general statement or written communication that does not include each of these specified elements.

  (2) Executor. The term executor includes any person described in section 2203, as expanded to include all persons required under section 6018(b) to file an estate tax return.

  (3) Estate tax liability. The term estate tax liability means the amount of tax imposed under chapter 11 of the Code (chapter 11).

  (4) Included property. The term included property means property the value of which is included in the value of the decedent's gross estate as defined in section 2031 or 2103. Generally, this refers to property whose value is reported on an estate tax return, but it also refers to property whose value otherwise is included in the total value of the gross estate (for example, during examination by the IRS) so that a final value is or will be determined for that property under chapter 11. However, solely for purposes of this section, included property does not refer to unreported property whose value is not reported on an estate tax return and whose value is not otherwise included in the value of the decedent's gross estate as finally determined for Federal estate tax purposes.

  (5) Allowable credits. The term allowable credits includes any credit against the estate tax liability allowable by any section of the Code or by reason of any treaty obligation of the United States, provided the estate qualifies for and properly claims the credit by complying with all applicable rules for claiming the credit. For instance, the prorated unified credit under section 2102(b)(3) is an allowable credit for qualifying estates if the estate files all necessary forms or statements required by the IRS to claim that credit.

  (6) United States dollars. The term United States dollars means the official currency of the United States. The term United States dollars includes physical bills and coins for which the value of each bill or coin is equivalent to the face amount of that bill or coin. This definition does not include other physical United States bills or coins with numismatic value because these bills and coins typically do not have a value equal to their face value.

• Treas. Reg. §1.1014-10(e)Examples. Show full text ▾ Collapse ▴

  Examples. The following examples illustrate the application of this section. In each case, the decedent D was a citizen of the United States, the estate does not elect the alternate valuation method under section 2032, and an estate tax liability is payable after the application of all allowable credits.

  (1) Example 1—(i) Final value determined by value on estate tax return. At D's death, D owned (among other assets) a private residence not subject to any debt. D's sole beneficiary is D's child C. The value of the residence is reported on the estate tax return at $300,000. The IRS accepts the return as filed and the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of D's residence is $300,000, and therefore, C's initial basis in the residence is $300,000. See paragraphs (a)(2) and (b)(1)(i) of this section.

  (ii) Adjustment of initial basis pursuant to other Code provisions. Several years later, C adds a master suite to the private residence at a cost of $45,000. Pursuant to section 1016(a), C's basis in the residence is increased by $45,000 to $345,000. Subsequently, C sells the residence to an unrelated third party for $450,000. C claims a basis in the residence of $345,000 and reports a gain of $105,000 ($450,000 less $345,000). C has complied with the consistent basis requirement, and C's adjustment to C's initial basis does not violate the consistent basis requirement. See paragraphs (a)(1) and (2) of this section.

  (2) Example 2—(i) Final value determined on examination. The facts are the same as in paragraph (e)(1)(i) of this section (Example 1) except that, on examination, the IRS adjusts the value of the residence to $290,000 and that value is not contested before the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of the residence is $290,000, and therefore, C's initial basis in the residence, before taking into account C's subsequent renovations, is $290,000. See paragraphs (a)(2) and (b)(1)(ii) of this section.

  (ii) Reported value if no final value yet determined and reliance on Statement required under § 1.6035-1. Prior to the determination of final value, C sells the residence for $375,000. C reports a gain of $75,000 on C's income tax return, relying on the reported value in a Statement required under § 1.6035-1 and claiming an initial basis of $300,000. C has complied with the consistent basis requirement because C did not claim an initial basis in the residence in excess of its reported value before the final value was determined. However, because C claimed an initial basis in the residence that exceeds the final value, C may have an income tax deficiency and underpayment for the year of the sale if the applicable period of limitations on assessment for C's income tax return has not expired when the final value is determined. See paragraphs (b)(2)(i) and (ii) of this section.

  (3) Example 3—(i) Final value determined by agreement. At D's death, D owned 50% of Partnership P, whose sole asset was a rental building with a fair market value of $10 million subject to non-recourse debt of $2 million. D's sole beneficiary is D's child C. The value of D's interest in Partnership P is reported on the estate tax return at $4 million (50% of ($10 million less $2 million)). On examination, the IRS timely adjusts the value of the partnership interest to $5.25 million and the executor of D's estate timely contests that value before the period of limitations on assessment of estate tax expires. Subsequently, the IRS and the executor of D's estate enter into a settlement agreement that provides that the value of D's interest in Partnership P for purposes of the estate tax is $4.5 million. For purposes of the consistent basis requirement applicable to C, the final value of the partnership interest is $4.5 million, and therefore, C's initial basis in the partnership interest is $4.5 million. See paragraphs (a)(2) and (b)(1)(iii) of this section.

  (ii) Adjustment of initial basis pursuant to other Code provisions. C's share of Partnership P's liabilities at the date of D's death is $1 million. Under section 742 of the Internal Revenue Code and § 1.742-1 of this part, C's basis in the partnership interest is $5.5 million ($4.5 million initial basis plus C's $1 million share of Partnership P's debt). C later sells the partnership interest for $5 million at a time when C's basis has not changed and C's share of the debt remains $1 million. Under section 752(d), C's amount realized on the sale includes $1 million for the reduction in C's share of partnership liabilities. Therefore, C's total amount realized is $6 million. C reports taxable gain of $0.5 million ($6 million amount realized less $5.5 million basis). C has complied with the consistent basis requirement because C did not claim an initial basis in the partnership interest that exceeds the final value of the interest, as determined under paragraph (b)(1) of this section, and C's adjustment of the initial basis in the partnership interest as reported does not violate the consistent basis requirement. See paragraphs (a)(1) and (2) of this section.

  (4) Example 4—(i) Final value determined by court decision. At D's death, D owned (among other assets) a rental property. D's sole beneficiary is D's child C. The value of the rental property is reported on the estate tax return at $1 million. On examination, the IRS determines the value of the rental property to be $1.5 million. A court subsequently determines that the fair market value of the rental property for purposes of the estate tax is $1.3 million and the court's decision becomes final. For purposes of the consistent basis requirement, the final value of the rental property is $1.3 million, and therefore, C's initial basis is $1.3 million. See paragraphs (a)(2) and (b)(1)(iv) of this section.

  (ii) Reliance on Statement required under § 1.6035-1 and duration of consistent basis requirement. After the estate tax return is filed and before the final value is determined, C receives a Statement required under § 1.6035-1 showing a reported value of $1 million for the rental property. C claims a depreciation deduction on the first income tax return C files after acquiring the property, relying on the reported value in the Statement required under § 1.6035-1. C has complied with the consistent basis requirement on that return because C did not claim an initial basis in the rental property in excess of its reported value before the final value was determined. C may claim a credit or refund of income tax that may result from the increased depreciation deduction based on the final value of the rental property, but only if the period of limitations for a claim for a credit or refund of income tax for that year has not expired. C must use the final value of $1.3 million to determine C's unadjusted basis in the rental property for all open taxable years. In this case and pursuant to section 1016(a)(2), C's adjusted basis is determined by reducing the rental property's final value of $1.3 million by the greater of the depreciation deductions allowed or allowable based on the final value of $1.3 million for all prior tax years (open and closed). See paragraphs (a)(3), (b)(2)(i) and (ii) of this section.

  (5) Example 5—Final value for property subject to debt. At D's death, D's gross estate includes a yacht valued at $750,000, subject to $150,000 non-recourse debt. D's sole beneficiary is D's child C. Pursuant to the rule in § 20.2053-7 of this chapter, the executor of D's estate reports the $600,000 net value of the yacht on the estate tax return ($750,000 less $150,000 debt) and claims no other deduction for the debt. The IRS accepts the return as filed and the period of limitations on assessment of estate tax expires. For purposes of the consistent basis requirement applicable to C, the final value of the yacht is $750,000, and therefore, C's initial basis in the yacht is $750,000. See paragraph (b)(3) of this section.

  (6) Example 6—Included property subject to the consistent basis requirement. After exercising due diligence to discover estate assets, the executor of D's estate reports the value of all known property includible in D's gross estate on a timely filed estate tax return and pays the estate tax liability. During examination of the return, the IRS becomes aware of a piece of artwork in the possession of D's child C, the value of which is includible in D's gross estate but is not reported on the estate tax return. The value of the artwork for Federal estate tax purposes is $500,000. Pursuant to the examination, the IRS includes the value of the artwork in the value of D's gross estate, which causes an increase in D's estate tax liability. Neither the inclusion of the artwork in D's gross estate nor the value at which the artwork is included in D's estate is contested by the executor of D's estate before the period of limitation on assessment of estate tax expires. The artwork is subject to the consistent basis requirement and the final value of the artwork is $500,000. Therefore, C's initial basis in the artwork is $500,000. See paragraphs (a)(2) and (c)(1)(i) of this section.

  (7) Example 7—(i) Partially deductible property subject to the consistent basis requirement. Pursuant to a bequest in D's will, Trust is established and funded with certain property, the value of which is includible in the gross estate under section 2031. Trust is a charitable remainder annuity trust described in section 664(d)(1). Trust provides that, in each taxable year during the lifetime of D's surviving child C, the trustee must pay to C an annuity of 5% of the initial net fair market value of all property passing to Trust as finally determined for Federal estate tax purposes. Upon the death of C, the trustee must distribute all of the then principal and income of Trust to organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the trustee selects, in the trustee's sole discretion. Although the executor of D's estate properly claims an estate tax charitable deduction under section 2055(e)(2)(A) for the value of the remainder interest in Trust, D's estate has an estate tax liability after application of all allowable credits. The property passing to Trust is subject to the consistent basis requirement because the value of the property is included in D's gross estate, an estate tax liability is payable after the application of all allowable credits, and the property is not described in paragraph (c)(2) of this section (in particular, the property is not wholly deductible property within the meaning of paragraph (c)(2)(xi) of this section).

  (ii) Wholly deductible property not subject to the consistent basis requirement. The facts are the same as in paragraph (e)(7)(i) of this section (Example 7), except that the sole annuity beneficiary of Trust is D's surviving spouse S, and the executor of D's estate properly claims a deduction under section 2056(b)(8) for the value of S's annuity interest. Because the value of D's entire interest in the property passing to Trust qualified for either a charitable deduction under section 2055(e)(2) or a marital deduction under section 2056(b)(8), none of the property passing to Trust will be subject to the consistent basis requirement. See paragraph (c)(2)(xi) of this section.

  (iii) Property not wholly deductible property if the sum of marital and charitable deductions allowed for that property is less than the value of the decedent's entire interest in the property. At the time of D's death, D owned 80 shares of voting stock in a closely-held corporation that has 100 shares of voting stock outstanding. D's will directed the executor of D's estate to distribute 40 shares of D's stock to a marital trust and 40 shares of D's stock to a charitable trust. D's executor included the value of D's 80 shares of stock in D's gross estate at $8,000,000 for purposes of the estate tax. Because of discounts applicable in valuing each of the two blocks of only 40 shares of the stock, D's executor correctly claimed a charitable deduction under section 2055(e)(2) of only $3,000,000, and correctly claimed a marital deduction under section 2056(b)(7) of only $3,000,000. D's executor determined that an estate tax was due on D's estate after the application of all allowable credits. The IRS accepted the return as filed and the period of limitations on assessment of estate tax expired. The 40 shares of stock owned by charitable trust and the 40 shares of stock owned by marital trust are not wholly deductible property within the meaning of paragraph (c)(2)(xi) of this section and are subject to the consistent basis requirement.

• Treas. Reg. §1.1014-10(f)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. This section applies to property described in paragraph (c)(1) of this section that is acquired from a decedent or by reason of the death of a decedent if the decedent's Federal estate tax return is filed after September 17, 2024.

• Treas. Reg. §1.1014-10(i)United States dollars (as defined in paragraph (d)(6) of this section). Show full text ▾ Collapse ▴

  United States dollars (as defined in paragraph (d)(6) of this section).

  (ii) United States dollar-denominated demand deposits.

  (iii) Certificates of deposit denominated in United States dollars.

  (iv) Cash collateral denominated in United States dollars held by a third party to secure a liability (such as a deposit of purchase money or a security deposit).

• Treas. Reg. §1.1014-10(v)Shares of a registered investment company priced in United States dollars that is a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270. Show full text ▾ Collapse ▴

  Shares of a registered investment company priced in United States dollars that is a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270.2).

  (vi) Life insurance proceeds on the life of the decedent payable in a lump sum in United States dollars.

  (vii) Federal, State, and local tax refunds and other refunds payable entirely in United States dollars.

  (viii) Notes that are forgiven in full by the decedent upon death, whether or not denominated in United States dollars.

  (ix) Household and personal effects for which an appraisal is not required under § 20.2031-6(b) of this chapter.

• Treas. Reg. §1.1014-10(x)Property the initial basis of which is not in any way determined with regard to or derived from the property's final value as determined under paragraph (b)(1) of this section or its reported value as determined under paragraph (b)(2) of this section, if applicable. Show full text ▾ Collapse ▴

  Property the initial basis of which is not in any way determined with regard to or derived from the property's final value as determined under paragraph (b)(1) of this section or its reported value as determined under paragraph (b)(2) of this section, if applicable. Such property includes but is not limited to—

  (A) Annuity contracts subject to section 72 and amounts received as an annuity subject to section 72;

  (B) An interest in property that consists entirely of the right to receive an item of income in respect of a decedent as defined in section 691;

  (C) Amounts received under installment obligations arising from a transaction for which the installment method for determining gain under section 453 applies;

  (D) Appreciated property described in section 1014(e) that is acquired by the decedent within 1 year of death;

  (E) Stock of a passive foreign investment company subject to section 1296(i), but only if the basis of such stock is the adjusted basis in the hands of the decedent immediately before the decedent's death; and

  (F) Interests in and distributions from retirement plans and deferred compensation plans, including individual retirement arrangements as defined in sections 408 and 408A, that are expressed entirely in United States dollars.

  (xi) Any interest in property that qualified for an estate tax marital deduction under section 2056, 2056A, or 2106(a)(3) for which such a deduction was properly claimed, and/or any interest in property that qualified for an estate tax charitable deduction under section 2055 or 2106(a)(2) for which such a deduction was properly claimed, provided that the value of the decedent's entire interest in the included property is wholly deductible and equal to the total amount qualifying for those deductions.

  (xii) Property that represents the surviving spouse's one-half share of community property to which section 1014(b)(6) applies, regardless of whether this property is included property as defined in paragraph (d)(4) of this section.

  (xiii) Property the basis of which is adjusted in a manner similar to section 1014(a) on the occurrence of a taxable termination that occurs on the death of a trust beneficiary pursuant to section 2654(a)(2) (to the extent the property is not then includible in the gross estate of any person).

  (xiv) Any other property that is not described in paragraph (c)(1)(i) of this section or that is identified as excepted property in published guidance in the Federal Register or in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter).

• Treas. Reg. §1.1014-2Property acquired from a decedent Show full text ▾ Collapse ▴

  (a) In general. The following property, except where otherwise indicated, is considered to have been acquired from a decedent and the basis thereof is determined in accordance with the general rule in § 1.1014-1:

  (1) Without regard to the date of the decedent's death, property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent, whether the property was acquired under the decedent's will or under the law governing the descent and distribution of the property of decedents. However, see paragraph (c)(1) of this section if the property was acquired by bequest or inheritance from a decedent dying after August 26, 1937, and if such property consists of stock or securities of a foreign personal holding company.

  (2) Without regard to the date of the decedent's death, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust.

  (3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.

  (4) Without regard to the date of the decedent's death, property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will. (See section 2041(b) for definition of general power of appointment.)

  (5) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, Territory, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in that property was includible in determining the value of the decedent's gross estate under part III, chapter 11 of the Internal Revenue Code of 1954 (relating to the estate tax) or section 811 of the Internal Revenue Code of 1939. It is not necessary for the application of this subparagraph that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable.

  (6) In the case of decedents dying after December 31, 1950, and before January 1, 1954, property which represents the survivor's interest in a joint and survivor's annuity if the value of any part of that interest was required to be included in determining the value of the decedent's gross estate under section 811 of the Internal Revenue Code of 1939. It is necessary only that the value of a part of the survivor's interest in the annuity be includible in the gross estate under section 811. It is not necessary for the application of this subparagraph that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable.

  (b) Property acquired from a decedent dying after December 31, 1953—(1) In general. In addition to the property described in paragraph (a) of this section, and except as otherwise provided in subparagraph (3) of this paragraph, in the case of a decedent dying after December 31, 1953, property shall also be considered to have been acquired from the decedent to the extent that both of the following conditions are met: (i) The property was acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), and (ii) the property is includible in the decedent's gross estate under the provisions of the Internal Revenue Code of 1954, or the Internal Revenue Code of 1939, because of such acquisition. The basis of such property in the hands of the person who acquired it from the decedent shall be determined in accordance with the general rule in § 1.1014-1. See, however, § 1.1014-6 for special adjustments if such property is acquired before the death of the decedent. See also subparagraph (3) of this paragraph for a description of property not within the scope of this paragraph.

  (2) Rules for the application of subparagraph (1) of this paragraph. Except as provided in subparagraph (3) of this paragraph, this paragraph generally includes all property acquired from a decedent, which is includible in the gross estate of the decedent if the decedent died after December 31, 1953. Except as provided in § 1.1014-10, it is not necessary for the application of this paragraph (b)(2) that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable. Property acquired prior to the death of a decedent which is includible in the decedent's gross estate, such as property transferred by a decedent in contemplation of death, and property held by a taxpayer and the decedent as joint tenants or as tenants by the entireties is within the scope of this paragraph. Also, this paragraph includes property acquired through the exercise or nonexercise of a power of appointment where such property is includible in the decedent's gross estate. It does not include property not includible in the decedent's gross estate such as property not situated in the United States acquired from a nonresident who is not a citizen of the United States.

  (3) Exceptions to application of this paragraph. The rules in this paragraph are not applicable to the following property:

  (i) Annuities described in section 72;

  (ii) Stock or securities of a foreign personal holding company as described in section 1014(b)(5) (see paragraph (c)(1) of this section);

  (iii) Property described in any paragraph other than paragraph (9) of section 1014(b). See paragraphs (a) and (c) of this section.

  In illustration of subdivision (ii), assume that A acquired by gift stock of a character described in paragraph (c)(1) of this section from a donor and upon the death of the donor the stock was includible in the donor's estate as being a gift in contemplation of death. A's basis in the stock would not be determined by reference to its fair market value at the donor's death under the general rule in section 1014(a). Furthermore, the special basis rules prescribed in paragraph (c)(1) of this section are not applicable to such property acquired by gift in contemplation of death. It will be necessary to refer to the rules in section 1015(a) to determine the basis.

  (c) Special basis rules with respect to certain property acquired from a decedent—(1) Stock or securities of a foreign personal holding company. The basis of certain stock or securities of a foreign corporation which was a foreign personal holding company with respect to its taxable year next preceding the date of the decedent's death is governed by a special rule. If such stock was acquired from a decedent dying after August 26, 1937, by bequest or inheritance, or by the decedent's estate from the decedent, the basis of the property in the hands of the person who so acquired it (notwithstanding any other provision of section 1014) shall be the fair market value of such property at the date of the decedent's death or the adjusted basis of the stock in the hands of the decedent, whichever is lower.

  (2) Spouse's interest in community property of decedent dying after October 21, 1942, and on or before December 31, 1947. In the case of a decedent dying after October 21, 1942, and on or before December 31, 1947, a special rule is provided for determining the basis of such part of any property, representing the surviving spouse's one-half share of property held by the decedent and the surviving spouse under the community property laws of any State, Territory, or possession of the United States or any foreign country, as was included in determining the value of the decedent's gross estate, if a tax under chapter 3 of the Internal Revenue Code of 1939 was payable upon the decedent's net estate. In such case the basis shall be the fair market value of such part of the property at the date of death (or the optional valuation elected under section 811(j) of the Internal Revenue Code of 1939) or the adjusted basis of the property determined without regard to this subparagraph, whichever is the higher.

• Treas. Reg. §1.1014-2(a)In general. Show full text ▾ Collapse ▴

  In general. The following property, except where otherwise indicated, is considered to have been acquired from a decedent and the basis thereof is determined in accordance with the general rule in § 1.1014-1:

  (1) Without regard to the date of the decedent's death, property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent, whether the property was acquired under the decedent's will or under the law governing the descent and distribution of the property of decedents. However, see paragraph (c)(1) of this section if the property was acquired by bequest or inheritance from a decedent dying after August 26, 1937, and if such property consists of stock or securities of a foreign personal holding company.

  (2) Without regard to the date of the decedent's death, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust.

  (3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.

  (4) Without regard to the date of the decedent's death, property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will. (See section 2041(b) for definition of general power of appointment.)

  (5) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, Territory, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in that property was includible in determining the value of the decedent's gross estate under part III, chapter 11 of the Internal Revenue Code of 1954 (relating to the estate tax) or section 811 of the Internal Revenue Code of 1939. It is not necessary for the application of this subparagraph that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable.

  (6) In the case of decedents dying after December 31, 1950, and before January 1, 1954, property which represents the survivor's interest in a joint and survivor's annuity if the value of any part of that interest was required to be included in determining the value of the decedent's gross estate under section 811 of the Internal Revenue Code of 1939. It is necessary only that the value of a part of the survivor's interest in the annuity be includible in the gross estate under section 811. It is not necessary for the application of this subparagraph that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable.

• Treas. Reg. §1.1014-2(b)Property acquired from a decedent dying after December 31, 1953—(1) In general. Show full text ▾ Collapse ▴

  Property acquired from a decedent dying after December 31, 1953—(1) In general. In addition to the property described in paragraph (a) of this section, and except as otherwise provided in subparagraph (3) of this paragraph, in the case of a decedent dying after December 31, 1953, property shall also be considered to have been acquired from the decedent to the extent that both of the following conditions are met: (i) The property was acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), and (ii) the property is includible in the decedent's gross estate under the provisions of the Internal Revenue Code of 1954, or the Internal Revenue Code of 1939, because of such acquisition. The basis of such property in the hands of the person who acquired it from the decedent shall be determined in accordance with the general rule in § 1.1014-1. See, however, § 1.1014-6 for special adjustments if such property is acquired before the death of the decedent. See also subparagraph (3) of this paragraph for a description of property not within the scope of this paragraph.

  (2) Rules for the application of subparagraph (1) of this paragraph. Except as provided in subparagraph (3) of this paragraph, this paragraph generally includes all property acquired from a decedent, which is includible in the gross estate of the decedent if the decedent died after December 31, 1953. Except as provided in § 1.1014-10, it is not necessary for the application of this paragraph (b)(2) that an estate tax return be required to be filed for the estate of the decedent or that an estate tax be payable. Property acquired prior to the death of a decedent which is includible in the decedent's gross estate, such as property transferred by a decedent in contemplation of death, and property held by a taxpayer and the decedent as joint tenants or as tenants by the entireties is within the scope of this paragraph. Also, this paragraph includes property acquired through the exercise or nonexercise of a power of appointment where such property is includible in the decedent's gross estate. It does not include property not includible in the decedent's gross estate such as property not situated in the United States acquired from a nonresident who is not a citizen of the United States.

  (3) Exceptions to application of this paragraph. The rules in this paragraph are not applicable to the following property: