Holding Period of Assets Acquired from a Decedent

Tax (Photo credit: 401K)

Capital gains and losses are generally classified as short-term or long-term based on the taxpayer’s holding period; capital assets held for more than one year (i.e. one year and one day, or longer) are considered held long-term. Net long-term capital gains are taxed at a lower rate (currently 15% [IRC §1(h)]) than ordinary income tax rates.

For property inherited, taxpayers are automatically treated as having held the property for more than one year. The instructions for Form 8939 read:

If you disposed of property that you acquired by inheritance from someone who died before or after 2010, report the disposition as a long-term gain or loss, regardless of how long you held the property.

In addition, IRC §1223(9) reads as follows:

In the case of a person acquiring property from a decedent or to whom property passed from a decedent (within the meaning of section 1014 (b)), if—

(A) the basis of such property in the hands of such person is determined under section1014, and
(B) such property is sold or otherwise disposed of by such person within 1 year after the decedent’s death,

then such person shall be considered to have held such property for more than 1 year.

As specified above, this rule only applies to property to which IRC §1041 applies. It does not apply to property for which a Section 1022 Election has been made; see here for more information.

When completing Schedule D (or now, Form 8949), the instructions direct taxpayers to enter “INHERITED” in the Date Acquired column (i.e. column (c)). In practice, I have never done this, but instead have entered the decedent’s date of death as the property’s acquisition date. In any event, make sure that the sale is reported as long-term.

This topic was previously covered in Holding Period for Inherited Assets (8/30/2011).


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