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Paying taxes on your inheritance

By Ismat Sarah Mangla, Money magazine

NEW YORK (Money magazine) -- Question: Since Congress hasn't yet reinstated the estate tax, what are the tax rules for valuing assets that you inherit in 2010? -- Jack Pickering, La Habra, Calif.

Answer: The absence of the estate tax doesn't mean you won't have to pay taxes on an asset you inherit this year, says Mark Luscombe, principal tax analyst at CCH.

Historically, when you inherited assets like stocks or a home, your tax basis was the fair market value at the time of death (what's known as a stepped-up basis).

So if you sold a stock your grandmother left you, you'd pay capital gains taxes only on any price appreciation since her death.

That's still true for estates below $1.3 million. But under current law, if you are handed down some serious money -- say, a small business your dad started decades ago -- the decedent's original tax basis also carries over.

So you'd owe taxes on the increase in value since your benefactor owned the asset. To top of page

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