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Deductions & credits
@ParkNYC , while I find @Opus 17 reply to you very complete, correct and to the point, I have to disagree on a minor point -- stepped up basis
(a) it is the decedent's estate that gets the stepped up/ down basis -- he/she had a basis in the property and therefore the basis adjustment to FMV is applied to his/her assets before or at the time of transfer to the estate ( the estate comes into being at the time of the demise of the decedent). Thus the adjustment to his/her basis is available to the estate and before transfer to the inheritors. So in a sense the inheritors get the advantage of the basis adjustment.
(b) Since the inheritor had no basis in the property -- unless co-owned ( which is whole another kettle of fish ), basis adjustment cannot apply.
Another point that concerns me here -- you keep talking about gift. A gift can only occur while the donor is alive -- it become an inheritance , even if the decedent wrote in his will -- "I gift this asset to XXXX", it is still an inheritance if affected after the death of the decedent. I recognize that the form 3550 does cover both gifts and inheritances --- these are not taxable items but IRS wants to establish & track the basis , especially from foreign persons to a US person.
Is there more I can do for you ?