Wednesday, February 16, 2011

Form 8939 - Allocation of Increase in Basis for Property Acquired From a Decedent

On December 17, 2010 the Estate Tax Law was reinstated retroactively to January 1, 2010.  However, the law allows executors of decedents who died in 2010 to elect-out of the estate tax.  If that is done the estate has elected-into the carry-over basis regime for all assets inherited from the estate.  The executor can increase the decedent's bases for the assets, generally, as follows: (1) $3 million for assets inherited by the surviving spouse, either directly or through a QTIP trust, and (2) $1.3 million for assets inherited by anyone.

If the executor has elected-out of the estate tax they must file Form 8939 to show the allocation of the basis increases.  Originally, the law provided that this form be filed with the decedent's final income tax return.

The IRS has just issued a draft of Form 8939 which can be found on the IRS's website (http://www.irs.gov/pub/irs-dft/f8939--dft.pdf).  The draft form does not include the instructions to the form which will be available once the form has been finalized.  In addition, the IRS has announced the following:

a.  It will be issuing Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010.

b.  Form 8939 should not be filed with the decedent's final return.

c.  The final form will be released at least 90 days before it is required to be filed.

d.  Information as to when to file, where to file and how to file will be included in Publication 4895.

e.  The election to elect out of the estate tax and into carry-over basis should not be made on the decedent's final return.  The instructions will be contained in Publication 4895.

Should you require any additional information please contact us.

Bob Katz