Basis in Property Acquired Through a Decedent

In General
There are two basis issues to consider when a taxpayer receives property through intestacy, under a will, or as a surviving joint tenant. The first is the determination of the taxpayer's basis in the property. The second, which arises in limited circumstances, involves the effect of the heir's, legatee's, or surviving joint tenant's assumption of, or taking subject to, an outstanding mortgage as a condition of state exoneration law, 180 as a condition of the legacy, or as a surviving joint obligor.
/Footnote/ 180 E.g., Unif. Prob. Code Section 2-609 (1982).

Normal Valuation Situations
Generally, property acquired from a decedent has a basis equal to its fair market value at the date of the decedent's death. 181 Fair market value is the value at which the property is included in the decedent's gross estate. 182
/Footnote/ 181 §1014(a)(1); Regs. §1.1014-1(a).
/Footnote/ 182 Regs. §1.1014-3(a).

Example—Date of Death Value

D dies on Apr. 4, 1997. One of D's assets is land in which his adjusted basis is $40,000. On Apr. 4, 1997, the land has a fair market value of $100,000, as reported on the estate tax return filed by D's estate. Under D's will, the land is devised to R. R's basis in the land is $100,000.
If no estate tax return is filed, the fair market value used for state inheritance or estate tax purposes is presumed to be the fair market value. 183 The person to whom the property passes may establish a different fair market value, 184 but carries a heavy burden of proof 185 and can be estopped by inconsistent actions. 186

/Footnote/ 183 Regs. §1.1014-3(a); Duerr v. Comr., 30 T.C. 944 (1958).
/Footnote/ 184 Rev. Rul. 54-97, 1954-1 C.B. 113.
/Footnote/ 185 Cordiero Est. v. Comr., 51 T.C. 195, 203 (1968); Rev. Rul. 54-97, 1954-1 C.B. 113 (Need clear and convincing evidence).
/Footnote/ 186 Beltzer v. U.S., 495 F.2d 211 (8th Cir. 1974).

Alternate Valuation Date Situations

If the executor of the decedent's estate elects the alternate valuation date of six months after the decedent's death, 187 the basis of property which is the subject of a specific bequest is its fair market value on the alternate valuation date. 188
/Footnote/ 187 §2032.
/Footnote/ 188 §1014(a)(2).

Example—Alternate Valuation Date (1)
Refer to the preceding example. Assume that the estate elects the alternate valuation date of Oct. 4, 1997, and reports the land on the estate tax return with a fair market value at that date of $110,000. R's basis in the land is $110,000.
If, however, the alternate valuation date is elected and distribution of the property pursuant to a specific bequest of the property occurs during the six-month period between the date of the decedent's death and the alternate valuation date, the basis of the property is its fair market value on the date of the distribution. 189

/Footnote/ 189 Regs. §1.1014-3(e).

Example—Alternate Valuation Date (2)
Refer to the preceding example. Assume that the estate distributes the land to R on Jul. 8, 1997, when its fair market value is $104,000. R's basis in the land is $104,000.
The alternate valuation date basis is reduced by any allowable depreciation for the period between the date of the decedent's death and the alternate valuation date or distribution date, whichever is appropriate. 190
/Footnote/ 190 Rev. Rul. 63-223, 1963-2 C.B. 100.

Appreciated Property Acquired by a Decedent Within One Year of Death

A special basis rule applies when property passes to an individual from whom or from whose spouse the decedent acquired the property by gift within one year before the decedent's death and, at the time of the gift, the fair market value of the property exceeded its adjusted basis. 197 Under these circumstances, the adjusted basis of the property in the hands of the individual receiving it through the decedent equals the adjusted basis of the property in the hands of the decedent at the time of the decedent's death. 198
/Footnote/ 197 §1014(e).
/Footnote/ 198 Id.

Example—Appreciated Property Acquired Within One Year
B gives property with a fair market value of $150,000 and in which his adjusted basis is $70,000 to C. C dies within one year of the gift, devising the property to B. The fair market value of the property at the time of C's death is $160,000. B's basis in the property, assuming that there are no intervening basis adjustments such as depreciation or improvements, is $70,000 and not $160,000.
This limitation also applies in situations where the person from whom or from whose spouse the decedent acquired the property is entitled to the proceeds of a sale of the property rather than to the property itself. 199
/Footnote/ 199 Id.

Property Received From a Decedent

There are a several ways in which property is considered to be acquired from a decedent, thus having a basis equal to the fair market value at the date of the decedent's death or the alternate valuation date. 202
/Footnote/ 202 §1014(b).

• Direct Receipt Through Death
  Property will be deemed to have been acquired from a decedent if it passes by intestacy, bequest or devise, or is acquired by the decedent's estate from the decedent. 203
  /Footnote/ 203 §1014(b)(1); Regs. §1.1014-2(a)(1). See Hummel v. IRS, No. IP 96-0934 C M/S (S.D. Ind. 5/21/98) (Taxpayer failed to prove ownership of property; taxpayer not devised property in will, but bequest of proceeds from sale of such property).

Example—Direct Receipt
At the time of D's death, she owned 3 parcels of land, Parcels 1, 2, and 3. D devised Parcel 1 to R. Because of a defect in the will, Parcel 2 passed by intestacy to D's niece. Parcel 3 was not the subject of a specific devise and was held by the estate for a few months before it was sold. The basis of all three parcels is determined under the general rule, because all three parcels were acquired from a decedent.

• 
  Lifetime Revocable Trusts

Property is deemed to have been received from a decedent if it was transferred by the decedent during his lifetime in trust to pay the income for life to, or on the order or direction of, the decedent, with the right reserved to the decedent at all times before his death to revoke the trust. 204
/Footnote/ 204 §1014(b)(2); Regs. §1.1014-2(a)(2).
Example—Lifetime Revocable Trust
D, during her lifetime, transfers stock to a trust. Under the trust terms, income is to be paid to D for life, with remainder to H. D reserves the right to revoke the trust. When D dies, the trust property becomes H's, but does not pass through D's estate. The property H receives from the trust is property acquired from a decedent.

• 
  Lifetime Trusts Under Decedent's Control

Property is deemed received from a decedent if it was transferred by the decedent during his lifetime in trust to pay the income for life to, or on the order or direction of, the decedent, with the right reserved to the decedent at all times before his death to make any change in its enjoyment through the exercise of a power to alter, amend, or terminate the trust. 205
/Footnote/ 205 §1014(b)(3); Regs. §1.1014-2(a)(3).
Example—Retention of Control
D, during her lifetime, transfers stock to a trust. Under the trust terms, income is to be paid to D for life, with remainder to H. D reserves the right to change the remainder interest to anyone she designates. When D dies, the trust property becomes H's, but does not pass through D's estate. The property H receives from the trust is property acquired from a decedent.

• Property Passing Under Power of Appointment

Property is deemed received from a decedent if it was received without full and adequate consideration under a general power of appointment exercised by the decedent by will. 206
/Footnote/ 206 §1014(b)(4); Regs. §1.1014-2(a)(4).
Example—Power of Appointment
F, D's father, transfers stock to a trust. Under the trust terms, income is to be paid to M, F's son, for life, and thereafter to F's other children. By the terms of the trust, D has the power to disbribute the assets when the last of F's children dies. When D dies, M is alive. In her will, D appoints the trust property to M's daughter R. The property R receives from the trust when M dies is property acquired from a decedent.

Certain Community Property

Property is deemed received from a decedent if it is the surviving spouse's one-half share of community property held by the decedent and the surviving spouse, if at least one-half of the interest in the property was includible in the gross estate of the decedent. 208 Property can be characterized as community property under the laws of a state, a possession of the U. S. or any foreign country. 209 It is not necessary that an estate tax return be due for the decedent's estate, nor that any estate tax liability exist. 210
/Footnote/ 208 §1014(b)(6); Regs. §1.1014-2(a)(5).
/Footnote/ 209 Id.
/Footnote/ 210 Regs. §1.1014-2(a)(5).

• 
  Property Included in Decedent's Gross Estate

Property, which must be included in the decedent's gross estate because it is acquired from a decedent by reason of death, form of ownership, exercise or non-exercise of a power of appointment, or other conditions, is deemed to have been received from a decedent, 211 regardless of whether or not an estate tax return is due, or whether or not any estate tax liability exists. 212
/Footnote/ 211 §1014(b)(9); Regs. §1.1014-2(b)(1).
/Footnote/ 212 Regs. §1.1014-2(b)(2).

If the property was acquired before the decedent's death, the basis must be adjusted to reflect depreciation, amortization, and depletion that were allowed as deductions during the intervening period. 213 Annuities, 214 foreign personal holding company stock or securities, 215 or property within any of the other definitions of property acquired from a decedent fall outside this category of property acquired from a decedent. 216 Inclusion of property in a decedent's gross estate is discussed at ¶6190.
/Footnote/ 213 Id.
/Footnote/ 214 §1014(b)(9)(A); Regs. §1.1014-2(b)(3)(i).
/Footnote/ 215 §1014(b)(9)(B). Regs. §1.1014-2(b)(3)(ii).
/Footnote/ 216 §1014(b)(9)(C); Regs. §1.1014-2(b)(3)(iii).

• 
  Certain Marital Deduction Property

Property is deemed to have been acquired from a decedent if it is includible in the decedent's gross estate because the decedent acquired the property from a spouse whose estate employed the estate tax marital deduction rules. 217
/Footnote/ 217 §1014(b)(10), referring to the §2044 marital deduction rules.

If the property was acquired before the decedent's death, the basis must be adjusted to reflect depreciation, amortization and depletion that were allowed as deductions during the intervening period. 218 Property falls outside this definition if it is an annuity, 219 foreign personal holding company stock or securities, 220 or property within any of the other definitions of property acquired through a decedent. 221 The marital deduction rules are discussed at ¶6270.
/Footnote/ 218 Id. (incorporating §1014(b)(9)).
/Footnote/ 219 §1014(b)(10) (incorporating §1014(b)(9)(A)).
/Footnote/ 220 §1014(b)(10) (incorporating §1014(b)(9)(B)).
/Footnote/ 221 §1014(b)(10) (incorporating §1014(b)(9)(C)).

Computation of Basis

• 
  In General

Under the general rule, the basis of property acquired from a decedent is its fair market value on the date of the decedent's death or on the alternate valuation date elected by the estate. 222 This general rule does not apply if, before the decedent's death, the property received is sold, exchanged, or disposed of by the person who acquired the property from the decedent. 223 A taxpayer who acquires and disposes of an interest in propery before the decedent's death determines the basis of the property under the principles relating to gifts rather than under the principles relating to property acquired from a decedent. 224
/Footnote/ 222 §1014(a)(1); Regs. §1.1014-1(a). The estate tax alternate valuation date is prescribed in §2032.
/Footnote/ 223 Regs. §1.1014-1(a).
/Footnote/ 224 §1014(a)(1); Regs. §§1.1014-1(a) and 1.1014-3(d).
Example—Disposition Prior to Death
D gives property to X to C, reserving the right to use it for life. D does not retain any power to revoke, alter, amend, or terminate the donation. While D is alive, C sells her interest in X for $95,000. Assuming C's adjusted basis under the gift adjusted basis principles is $85,000, she realizes gain of $10,000. When D dies, X has a fair market value of $105,000. C does not readjust her basis, and may not recalculate gain or loss realized.

Adjustments to Basis of Property Acquired Before Decedent's Death

• 
  In General

If property that passes through a decedent is acquired by a taxpayer during the decedent's lifetime and is subject to allowances for depreciation, depletion or amortization, the basis acquired at the decedent's death must be adjusted to reflect those allowances. 229 Generally, this means that the taxpayer's basis is the fair market value at the appropriate date (death or alternate valuation), reduced by amounts allowed for depreciation, depletion and amortization. 230
/Footnote/ 229 Regs. §1.1014-6(a)(1).
/Footnote/ 230 Id.
Example—Adjustment for Depreciation
D establishes a revocable trust that pays income to her children for life, remainder to her grandchildren. She transfers to the trust a building that she purchased on the preceding day for $1 million. The trust depreciates the building, using $1 million as its depreciable basis. At the time of D's death, the building has a fair market value of $1.6 million and the trust has properly claimed depreciation deductions of $550,000. The trust's basis in the building is $1,050,000 ($1.6 million fair market value - $550,000 depreciation).

• 
  Joint Property

A modification of the general rule is necessary when the property has been held by the decedent and the surviving spouse as tenants by the entirety or as joint tenants with right of survivorship, and joint income tax returns have been filed. 231 In such a case, the fair market value is reduced only by the portion of depreciation that is attributable to the surviving spouse. 232 This is accomplished by allocating the depreciation to each spouse in proportion to the manner in which the income from the property would have been allocated under local law. 233 Reductions are not made for deductions allocable to the decedent. 234
/Footnote/ 231 Regs. §1.1014-6(a)(2).
/Footnote/ 232 Id.
/Footnote/ 233 Id.
/Footnote/ 234 Regs. §1.1014-6(c)(1). See Rev. Rul. 75-142, 1975-1 C.B. 256.

Example—Joint Property (1)
A married couple, H and W, purchased a rental property, which they held as tenants by the entirety, for $150,000. Before H's death, they claimed $50,000 of depreciation on joint income tax returns. Under local law, each spouse was entitled to 1/2 of the income from the property. The property's fair market value was $500,000 when H died. Under the regulations, 1/2 of the depreciation is allocated to W. Her basis in the property is $300,000, the sum of her basis in half of the property excluded from H's gross estate ($75,000 cost - $25,000 depreciation) plus her basis in the half acquired from the decedent ($250,000).

Example—Joint Property (2)
Refer to the preceding example.If under local law all income is allocable to H, then none of the depreciation is allocated to W. Her basis in the property is $325,000, the sum of her basis in the half of the property not included in H's gross estate ($75,000), plus her basis in the half acquired from H ($250,000).

Example—Joint Property (3)
Refer to the preceding example. If under local law all income is allocable to W, then all of the depreciation is allocated to W. Her basis in the property is $275,000, the sum of her basis in the half of the property not included in H's gross estate ($75,000 - $50,000 depreciation), plus her basis in the half passing from H ($250,000).
(3). Deductions Attributable to the Decedent
For property not held jointly by the decedent with a surviving spouse, two rules apply. First, reductions are not made for deductions attributable to the decedent. 235
/Footnote/ 235 Regs. §1.1014-6(c)(1).

Example—Decedent's Deductions
D establishes a trust, income payable to D for life, remainder to R. D funds the trust with depreciable property. Under the grantor trust rules and the trust's provisions concerning depreciation, the trust income and its deductions are allocated to D. When D dies, the value of the trust is included in his gross estate. R's basis in the property is its fair market value, unreduced by depreciation.
Second, if only part of the value of the property is included in the decedent's gross estate because of the operation of the gross estate inclusion rules, then the reduction is only a portion of the deductions. 236 The portion equals a fraction, the numerator of which is the value included in the decedent's gross estate and the denominator of which is the total value of the property.
/Footnote/ 236 Id.

Example—Allocation of Deduction
D creates a trust, income to A for life, remainder to B or his estate, but if D survives A, income is payable to D for life. D transfers to the trust depreciable property with a basis of $150,000. D predeceases A and B. The present value of the remainder interest included in D's gross estate is $100,000, and the value of the entire trust is $150,000. During D's lifetime the trust properly claims depreciation deductions of $10,000. At D's death, the basis of the property is $143,333 ($150,000 -(($100,000/$150,000) x $10,000 depreciation)).

• Mortgaged Property

Under certain circumstances, if the taxpayer who acquires property by inheritance, bequest or survivorship also assumes or takes subject to an outstanding mortgage, modifications must be made to the rule that basis equals fair market value as of the date of the decedent's death or the alternate valuation date.

If the taxpayer assumes an outstanding mortgage that is an obligation of the decedent's estate, he has arguably purchased, rather than inherited, the property and thus would have a cost basis. This suggestion is based on the result in one case where the taxpayer was given a cost rather than fair market value adjusted basis in land taken subject to an obligation to pay $2,000 to the taxpayer's brother and to pay support to the taxpayer's mother. 237 Such a conclusion, that the basis is a cost basis, is appropriate if the taxpayer is obligated to assume the mortgage as a condition of receiving the property. It is not appropriate if the mortgage assumption is gratuitous, but is, in effect, a separate gift to the decedent's other heirs or beneficiaries.
/Footnote/ 237 See Vaira v. Comr., 52 T.C. 986, 997 (1969), rev'd on other grounds, 444 F.2d 770 (3d Cir. 1971).

If the taxpayer takes subject to an outstanding mortgage that is an obligation of the decedent's estate either because the decedent was personally liable on the mortgage or because the property is subject to the mortgage, the individual's basis in the property is determined under the general rule giving the taxpayer a fair market value basis. 238 This conclusion should apply even if the amount of the mortgage exceeds the estate tax value of the property. 239
/Footnote/ 238 See Crane v. Comr., 331 U.S. 1, 11 (1947).
/Footnote/ 239 See Comr. v. Tufts, 461 U.S. 300 (1983).

Uniform Basis Rules

• 
  In General
  Under the uniform basis rules, the basis of property acquired from a decedent is the same in the hands of every person having possession or enjoyment of the property at any time under the will or other instrument or under the laws of inheritance. 240 This uniform basis is used for purposes of determining depreciation, depletion and amortization, whether the property is held by the executor, administrator, heir, legatee, devisee, trustee of an lifetime or testamentary trust or beneficiary of such a trust. 241
  /Footnote/ 240 Regs. §1.1014-4(a). See Barber v. Comr., 25 B.T.A. 513 (1932).
  /Footnote/ 241 Regs. §1.1014-4(a).
  The uniform basis of property in the hands of those to whom it passes through a decedent is unaffected by the disposition by a life tenant or remainder holder of his interest in the property. 242 Thus, gain or loss on the sale of assets by a trustee, and the determination of depreciation, depletion and amortization are computed without regard to prior dispositions of interests in the property by other persons. 243
  /Footnote/ 242 Id.
  /Footnote/ 243 Id.
• 
  Timing
  The uniform basis for all interests in property passing through a decedent is computed as of the date of death or other valuation date, regardless of when each person with an interest in the property takes possession or enjoyment. 244
  /Footnote/ 244 Regs. §1.1014-4(a)(2).
  Note: This is because under state law all titles to property acquired by reason of the decedent's death relate back to that death. 245
  /Footnote/ 245 Id.
  Example—Acquisition Relates Back
  When D died, she bequeathed land to N, and directed that the residue of her estate be placed in trust for the benefit of her nieces and nephews. The executor conveyed the land to N 8 months after D's death. The residue was not paid to the trustees until 16 months after the decedent's death. Nonetheless, the fair market value basis is determined as of the date of the D's death.
•  
  c. Transfers Constituting Sales and Exchanges
  The uniform basis rules do not apply when an executor, administrator, or trustee who acquires an interest in property from a decedent transfers the property to an heir, legatee, devisee, or beneficiary in a sale or exchange. 246 In such a case, the person transferring the property realizes gain or loss, and the person acquiring it has a cost basis. 247
  /Footnote/ 246 Regs. §1.1014-4(a)(3).
  /Footnote/ 247 Id. See Rev. Rul. 74-178, 1974-1 C.B. 196.
  Example—Sale or Exchange
  D dies, and under the terms of his will $10,000 must be paid to F. The estate acquired from D stock with a fair market value of $8,000 at D's death but which, 3 months later, has a fair market value of $10,000. At that time, the estate transfers the stock to F in satisfaction of the bequest. The estate realizes gain of $2,000, and F's basis is $10,000.
• 
  d. Multiple Interests
  If more than one person has an interest in property passing through a decedent, the basis of the property is determined without regard to those multiple interests. 248
  /Footnote/ 248 Regs. §1.1014-4(b).
  Example—Multiple Interests (1)
  Under the terms of D's will, property is left to L for life, with remainder to R. At the time of D's death, the fair market value of the property is $100,000. The uniform basis of the property is $100,000.
  Thus, depreciation, depletion and amortization claimed by a life tenant reduce the uniform basis, even to the extent of other persons with interests in the property who do not claim such deductions. 249
  /Footnote/ 249 Id.
  Example—Multiple Interests (2)
  Refer to the preceding example. Assume that L properly claims depreciation deductions of $5,000. The uniform basis of the property, even as to R, is $95,000.
• 
  e. Dispositions of Interests in Property Acquired Through a Decedent
  Generally, the gain or loss realized on the sale of an interest in property with a uniform basis is measured by the difference between the amount realized and an appropriate portion of the adjusted uniform basis. 250 The adjusted uniform basis is the uniform basis adjusted by any basis adjustments that occurred between the date of death and the date of disposition. 251
  /Footnote/ 250 Regs. §1.1014-5(a)(1).
  /Footnote/ 251 Id.
  The appropriate portion of the adjusted uniform basis is determined by taking into account the changes in the relative value of the interests in the property that occur with the passage of time. 252 The actual computation is done using the actuarial tables 253 applicable for estate tax valuation purposes. 254
  /Footnote/ 252 Regs. §1.1014-5(a)(2).
  /Footnote/ 253 See Regs. §20.2031-7.
  /Footnote/ 254 Regs. §1.1014-5(a)(3).
  Example—Adjusted Uniform Basis
  D devises land to P for life, remainder to Z. At the time of D's death, the land has a fair market value of $100,000. That constitutes its uniform basis. No transactions requiring adjustments occur. Several years later, when Z is age 43, he sells his remainder interest for $20,000. Under the actuarial table, the factor for a remainder at age 43 is .10145. Z's portion of the uniform basis is $10,145 ($100,000 x .10145). Z's gain realized is $9,855 ($20,000 - $10,145).
  The exception to this general rule applies to the sale of term and similar interests. 255 As discussed in greater detail in ¶1430.01.B.2, above, the taxpayer who sells a term interest under these circumstances is treated as though the adjusted basis were zero. 256
  /Footnote/ 255 Regs. §1.1014-5(b).
  /Footnote/ 256 §1001(e).
• 
  f. Application to Adjustments for Deductions Allowed Before Decedent's Death
  If more than one taxpayer has an interest in a property acquired from the decedent by reason of death, form of ownership, or other conditions before the decedent's death is included in the decedent's gross estate, special rules are needed to correlate the adjustments for pre-death deductions, as discussed in ¶1430.02.D.4.d, above, with the uniform basis rules. 257 The uniform basis, as well as the portion applicable to each interest, must reflect the deductions allowed for the period before the decedent's death. 258
  /Footnote/ 257 Regs. §1.1014-6(b)(1).
  /Footnote/ 258 Regs. §1.1014-6(b)(2).
  Example—Adjustments Before Death
  D transfers depreciable property to A for life, remainder to S. D's adjusted basis of $10,000 is shared by the donees under the gift uniform basis rules (discussed in ¶1430.02.E, below). Assume that A's share at the time of the gift is $7,000 and S's is $3,000. Depreciation of $2,000 is claimed by S before D dies. At D's death the property has a fair market value of $22,000. At that time, the uniform basis is shared by A and S in a 2/3 to 1/3 ratio. The uniform basis is $22,000. The adjusted uniform basis is $20,000 ($22,000 - $2,000). A's share is $13,333, and S's is $6,667.
  If only a portion of the property is included in the decedent's gross estate, the uniform basis is adjusted at the date of death to reflect a similar portion of what would otherwise be the increase in the uniform basis. 259
  /Footnote/ 259 Regs. §1.1014-6(b)(3)(i).
  Example—Calculation (1)
  Refer to the preceding example. Assume that under the estate tax law only $16,500 of the $22,000 value of the property is included in D's gross estate. Although the uniform basis would have increased by $10,000 had the entire property been included in D's gross estate, only $7,500 ($10,000 x $16,500 included in estate/$22,000 fair market value) is added to the uniform basis. The uniform basis is $16,000 ($10,000 + $7,500 - $2,000 depreciation ($16,500/$22,000)). This uniform basis is shared by A and S, $10,667 and $5,333, respectively.
  The preceding rule can be applied more directly if the portion that is included in the decedent's gross estate reflects only one of the multiple interests in the property. 260 The uniform basis of the interest equals the basis in the interest at the moment before death increased by the amount included in the decedent's gross estate. 261
  /Footnote/ 260 Regs. §1.1014-6(b)(3)(ii).
  /Footnote/ 261 Id.
  Example—Calculation (2)
  Refer to the preceding example. Assume that the $16,500 included in D's gross estate reflects a valuation of the remainder interest because under the estate tax law only the remainder is included in the gross estate. Immediately before D's death, the adjusted uniform basis of $8,000 ($10,000 - $2,000 depreciation) is shared by A and S, $5,333 and $2,667, respectively. S's basis in the remainder is increased by $15,000 ($16,500 - $1,500 of the depreciation), using the $16,500/$22,000 ratio. Thus, it is $17,667.
  Limitations apply to the use of the uniform basis computed under the preceding rules. If the value of the life interest is not included in the decedent's gross estate, the amount of depreciation, depletion or amortization allowed to the life tenant is limited to no more than and no less than the amount allowable to the life tenant had no portion of the basis been determined under the fair market value basis rules. 262 Any increase in depreciation, depletion or amortization resulting from the increase in the uniform adjusted basis is not allowed to the life tenant. 263
  /Footnote/ 262 Regs. §1.1014-6(b)(3)(iii)(a).
  /Footnote/ 263 Regs. §1.1014-6(b)(3)(iii)(b).
• 
  g. Application to Remainders
  If property is transferred for life, with remainder in fee, and the remainder holder dies before the life tenant, no adjustment is made to the uniform basis of the property when the owner of the remainder dies. 264 However, the basis of the remainder to the new remainder owner is determined as follows. The portion of the adjusted uniform basis of the property is adjusted by the difference between the value of the remainder at the date of the original remainder owner's death and the basis of the remainder immediately preceding that death. 265
  /Footnote/ 264 Regs. §1.1014-8(a)(1).
  /Footnote/ 265 Id.
  Example—Remainder Interest (1)
  In his will, a decedent established a trust whose corpus was stock with a fair market value of $100,000. The trust paid its income to A for life, remainder to B and her heirs. B died before A and bequeathed her remainder to C. At the time of B's death, the stock had a fair market value of $160,000. Assume that, under the actuarial tables, the portion of the uniform basis allocated to the remainder is $30,000. Assume that the value of the remainder at B's death is $50,000. The difference between the basis and the value is $20,000. This amount is added to the $30,000, giving C a $50,000 basis in the remainder when B dies.
  Example—Remainder Interest (2)
  Refer to the preceding example. Assume that 3 years later C sells her remainder interest. At the time of the sale, the portion of the uniform basis allocable to the remainder is $35,000. C's basis for determining gain or loss realized from the sale is $55,000, the sum of $35,000 plus the $20,000 difference between basis and value at the time of B's death.
  At the termination of the trust or when the life tenant dies, the basis of the property is distributed to the new holder of the remainder equals the uniform basis at the time the life interest ends or the distribution is made, adjusted by the difference between the value of remainder when the original remainder owner died and the portion of the uniform basis allocated to the remainder at that time. 266
  /Footnote/ 266 Regs. §1.1014-8(a)(2). See Huggett v. Burnet, 64 F.2d 705 (D.C. Cir. 1933), rev'g 24 B.T.A. 669 (1931); Slack v. Comr., 36 B.T.A. 105 (1937).
  Example—Remainder Interest (3)
  Refer to the preceding example. Assume that C does not sell her remainder but that A dies, causing C to become the full owner of the property. Assuming no adjustments to basis are required, the uniform basis is $100,000. C's basis is $120,000, the sum of the $100,000 plus the $20,000 difference between value and basis at the time of B's death.