Investors & landlords

Anonymous · ‎March 2, 2020

there is another concept that applies to your situation. it's called income in respect of a decedent. basically income the decedent was entitled to but didn't collect before death. there is no date of death step-up for these items. the recipient reports them as their income. this would include installment sale income under IRC 691(a)(4)

IRC code section 691

(a)Inclusion in gross income
(1)General rule

The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of:
(A)the estate of the decedent, if the right to receive the amount is acquired by the decedent’s estate from the decedent;
(B)the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or
(C)the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.

(4)Installment obligations acquired from decedent

In the case of an installment obligation reportable by the decedent on the installment method under section 453, if such obligation is acquired by the decedent’s estate from the decedent or by any person by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent—

(A)

an amount equal to the excess of the face amount of such obligation over the basis of the obligation in the hands of the decedent (determined under section 453B) shall, for the purpose of paragraph (1), be considered as an item of gross income in respect of the decedent; and

(B)

such obligation shall, for purposes of paragraphs (2) and (3), be considered a right to receive an item of gross income in respect of the decedent, but the amount includible in gross income under paragraph (2) shall be reduced by an amount equal to the basis of the obligation in the hands of the decedent (determined under section 453B).

(5)Other rules relating to installment obligations

(A)In generalIn the case of an installment obligation reportable by the decedent on the installment method under section 453, for purposes of paragraph (2)—

(i)

the second sentence of paragraph (2) shall be applied by inserting “(other than the obligor)” after “or a transfer to a person”,

(ii)

any cancellation of such an obligation shall be treated as a transfer, and

(iii)

any cancellation of such an obligation occurring at the death of the decedent shall be treated as a transferby the estate of the decedent (or, if held by a person other than the decedent before the death of the decedent, by such person).

(B)Face amount treated as fair market value in certain cases

In any case to which the first sentence of paragraph (2) applies by reason of subparagraph (A), if the decedent and the obligor were related persons (within the meaning of section 453(f)(1)), the fair market value of the installment obligation shall be treated as not less than its face amount.

(C)Cancellation includes becoming unenforceable

For purposes of subparagraph (A), an installment obligation which becomes unenforceable shall be treated as if it were canceled.