Stepped-up basis
Have you ever heard of something called a "stepped-up basis"? No? Well, let me explain it to you in a way that you can understand.
So, imagine your mom and dad bought a house for $100,000 many years ago. Over time, the house has gone up in value and is now worth $300,000. If your mom and dad decide to sell the house, they will have to pay taxes on the difference between what they bought the house for ($100,000) and what they sell it for ($300,000). This difference is called the "capital gain".
Now, let's say that your mom and dad pass away and leave the house to you. When you inherit the house, the "basis" (or value) of the house is "stepped up" to the value of the house on the day they passed away (in this case $300,000). This means that if you decide to sell the house, you would only pay taxes on any increase in value that occurs after you inherit it.
So, in other words, the "stepped-up basis" helps you avoid paying taxes on any capital gains that your mom and dad would have had to pay if they sold the house while they were still alive.
To sum up: Stepped-up basis is a way of valuing an inherited asset (like a house or stock) at its current market value when the owner passes away, instead of the original purchase price. This can help you avoid paying taxes on any increase in value that occurred before you inherited the asset.
So, imagine your mom and dad bought a house for $100,000 many years ago. Over time, the house has gone up in value and is now worth $300,000. If your mom and dad decide to sell the house, they will have to pay taxes on the difference between what they bought the house for ($100,000) and what they sell it for ($300,000). This difference is called the "capital gain".
Now, let's say that your mom and dad pass away and leave the house to you. When you inherit the house, the "basis" (or value) of the house is "stepped up" to the value of the house on the day they passed away (in this case $300,000). This means that if you decide to sell the house, you would only pay taxes on any increase in value that occurs after you inherit it.
So, in other words, the "stepped-up basis" helps you avoid paying taxes on any capital gains that your mom and dad would have had to pay if they sold the house while they were still alive.
To sum up: Stepped-up basis is a way of valuing an inherited asset (like a house or stock) at its current market value when the owner passes away, instead of the original purchase price. This can help you avoid paying taxes on any increase in value that occurred before you inherited the asset.