Generally, the basis is adjusted to the FMV (fair market value) at the date of death. There are exceptions to this general rule.
In Basis Adjustments at Death, the exceptions to this are listed on page 2. Number 3 Applies to your situation.
Exceptions to the General Rule. There are several exceptions to the general rule that assets acquired from a decedent are adjusted to the date of death value. They include:
- a. Alternate Valuation. If “Alternate Valuation” is elected by the executor or personal representative, the same rules outlined above are applicable, but they are applied with respect to the high-low trading prices as of the date that is six months after the date of death.
- i. Election must reduce federal estate taxes. Alternate valuation can only be elected where the gross estate and the federal estate tax are both reduced as a result of the election. In other words, this election is not available for smaller estates that are not large enough to be subject to federal estate tax (i.e., estates that are below the current $11,400,000 federal estate tax exemption amount). Similarly, estates of decedents survived by a spouse will often not qualify for alternate valuation because estate plans of married couples will generally be designed to defer all estate taxes until the death of the surviving spouse.
- ii. Global Election. If alternate valuation is elected, all estate assets are subject to the alternate valuation rules (i.e., there is no “picking and choosing” among assets.
- iii. Property sold, exchanged or distributed. An alternate valuation election causes the value of estate assets to be established six months after the date of death, unless individual assets are sold, exchanged, or distributed sooner, in which case their respective estate tax value (and basis) is established at such earlier date of sale, exchange, or distribution.
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