Video: Step Up in Basis with a 1031 Exchange

Should an individual who holds property acquired as part of a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange pass away, there is a tax policy commonly referred to as a "step-up in basis" or "stepped up basis" which stands for the proposition that upon the death of that taxpayer his or her heirs receive a “step up” in basis on the Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange property to fair market value, which effectively eliminates any obligation of the heirs for payment of the deferred taxes. Thus, the heirs can liquidate the property and not have a taxable event if they sell the asset for the fair market value known at the time of inheritance.