Hi, I have a rental which I will be selling as a 1031 exchange for another rental. I realize that this is not avoiding, but only delaying paying taxes on the gain. My question is- what if I die before selling and paying these taxes, do my beneficiaries have to pay the taxes when they inherit the property or???
Lynne

AtlantaTaxExpert

The estate assumes the ownership of the property and the 1031 exchange can be completed if that is the decision of the executor; make sure he/she knows what your wishes are in that case.

The property (new or old) then passes to your heirs. Estate taxes will be due if the estate is large enough ($2M cutoff).

wexeter

Your heirs would inherit the property and receive a step-up in cost basis. This means that your heirs cost basis is stepped up or becomes the fair market value at the date of your death. Essentially, the capital gain goes away because the value of the property is included in your estate calculation.