James is a resident of the U.S. and has accrued capital gains on an asset. If James dies prior to the realization of capital gains, ____.

Question

Quizplus · Accepted Answer

When James dies, the asset is transferred to his heirs at its fair market value as of the date of his death. This means that the heirs will receive a "step-up" in basis to the fair market value, and any capital gains that were unrealized before James's death will be erased. If the heirs sell the asset after receiving it as part of the inheritance, they will only owe capital gains tax on any gains that occur after James's death, not the gains that accrued while he was still alive.

James Is a Resident of the U