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Both the executors and the heirs who inherit property could get their ways in fair market value differences for estate tax and capital gains tax purposes – until now, because the loophole is closed.

The value of an estate determines the amount of tax due with no estate taxes due if the estate was worth less than $5.43 million in 2015 with that number moving up to $5.45 million in 2016. The executors would lean toward a lower value for assets that are difficult to assess in order to keep the value of the estate as low as reasonable.

At the same time, the heirs to the estate often had a different view. They receive the property with a stepped-up basis and if they sell the property later will have to pay capital gains tax on any appreciated value from the time they received it to when it was sold. Thus, they want the initial value of the property to be as high as possible.

In the past, both executors and inheritors could get their way and report different values to the IRS. However, as it was believed this was costing the government $1.5 billion a year, the loophole has been closed as reported by Forbes in an article entitled “Congress Cracks Down On Inheritors’ Tax Loophole.”

People who inherit property will now be stuck with the value executors place on it or face stiff tax penalties. This change reinforces the concept that it is wise to consult with estate attorneys when it comes time to value estate property since there is no change to the value once it is set.

Reference: Forbes (Dec. 16, 2015) “Congress Cracks Down On Inheritors’ Tax Loophole.”

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.