The IRS has just finalized long-awaited rules that will change how you report the value of inherited property. These new rules on consistent basis reporting for estates could have a major impact if you’re an heir, beneficiary or estate executor. Let’s dive into the new rules.

Background

When you inherit property, the starting value (basis) for tax purposes cannot exceed the final value used for estate taxes. If no final value is determined, the basis is the property’s reported value on a required Statement (for federal tax purposes).

Back in 2015, the IRS began cracking down on a dishonest practice wherein beneficiaries of inherited property eased their tax burden by reporting inherited assets on their returns at higher amounts than the assets’ original values. For estates with tax returns filed after July 31, 2015, a new required form alerted beneficiaries and the government of the basis of inherited assets, so beneficiaries would be unable to overstate the basis when they went to sell the asset at a later time.

Under the 2015 law:

• Executors and other applicable parties will be required to file a statement with the IRS pinpointing each asset included in the gross estate of the decedent.
• Each person with any interest in the property that is part of the decedent’s gross estate must be issued a statement as well.

What’s new in 2024?

Effective September 17, 2024, final regulations stipulate that the basis or starting value of inherited property must be consistent for both the IRS and the person inheriting the property.

In addition, the final regulations:

• Eliminate the zero basis rule for unreported property (under prior guidance, if property is not reported on an estate tax return, its basis is considered zero)
• Eliminate subsequent transfer reporting- Under prior guidance, beneficiaries besides trustees were required to report subsequent transfers of inherited property.
• Modify reporting requirements for property not acquired by a beneficiary prior to the estate tax return due date
• Clarifies the definition of “acquiring” property- Beneficiaries must report the basis of property they actually acquired by the estate tax return due date.

What are the penalties for noncompliance?

There are penalties under Reg. §301.6721-1(h)(2)(xii) for filing an incorrect Information Return, and Reg. §301.6722-1(e)(2)(xxxv) for filing incorrect Statements.

When are the final regulations effective?

September 17, 2024.

Through these final regulations, the IRS hopes to stress the importance of consistent reporting between estate executors and beneficiaries. Without this balance, not only are individuals receiving unfair and unearned tax advantages, but a decedent’s estate is not being respected the way he/she intended.