In estate planning, small details can have big consequences. One of those details is the “basis” of inherited assets, which refers to the value assigned for tax purposes when property passes from an estate to its beneficiaries. For years, confusion around basis reporting created headaches for heirs, accountants, and the IRS alike.
That’s why the IRS finalized consistent basis reporting rules in September 2024, now in effect for estates filing in 2025. These regulations simplify the process, but they also carry strict new responsibilities for executors and beneficiaries. For families, this is one of the most important compliance changes to be aware of this year.
What Changed With the Final Regulations
Until recently, executors had to report basis information for nearly every estate asset, even those that were never distributed. Beneficiaries sometimes reported a different basis than the estate, creating discrepancies with the IRS.
The new regulations bring much-needed clarity:
- Only distributed property is reported at first. Executors report basis information for property actually acquired by a beneficiary as of the estate tax return’s filing date; property distributed later is reported on a supplemental statement.
- No more “zero-basis” trap for omitted items. If an asset was inadvertently left off the estate return, the beneficiary isn’t stuck with a zero basis; instead, the asset’s basis is its proper estate-tax value.
- Less follow-on paperwork after beneficiary transfers. The final rules eliminate most “subsequent transfer” statements by beneficiaries (other than certain trustee situations).
These changes reduce administrative burdens. However, they also lock beneficiaries into the estate’s reported basis, making accuracy essential from the start.
How Executors and Beneficiaries Are Affected
For estates large enough to require a federal estate tax return (Form 706), the responsibilities don’t stop there. Executors must also complete Form 8971 and provide Schedule A to each beneficiary. These documents establish the estate tax value of inherited property, and once reported, that value becomes the beneficiary’s starting point (or “basis”) for income tax purposes when they later sell the asset.
The deadlines are strict. Executors have just 30 days from the time they file Form 706 to share this information with beneficiaries. If property is distributed after that initial filing, supplemental reports must be filed by January 31 of the following year. This means executors must stay organized and work closely with appraisers and accountants to ensure valuations are accurate and paperwork is filed on time.
Beneficiaries, meanwhile, are bound by whatever value the estate reports. Even if the market value of an inherited asset rises after the filing, heirs cannot claim a higher basis when they eventually sell. This “lock-in” effect underscores the importance of accurate reporting from the outset, because once it’s set, there is no adjusting later.
The IRS has also attached real consequences to noncompliance. Executors who file incorrect or late information face penalties of $330 per violation in 2025. For estates with multiple heirs and several reportable assets, those penalties can quickly add up.
As the American Bar Association has noted, these rules are designed to create a single, consistent version of the truth between estate tax filings and the income tax returns of heirs. While that alignment reduces confusion, it also raises the stakes. Executors must be diligent, and beneficiaries must understand their rights and limitations to avoid costly mistakes down the road.
Why This Matters for Estate Plans in 2025
Consider an estate that includes both real estate and closely held business interests. If the executor overlooks reporting requirements, heirs may lack the documentation needed to prove their basis when they later sell those assets. That can lead to surprise capital gains taxes or disputes with the IRS years down the road.
By contrast, when executors follow the rules and beneficiaries understand their obligations, families avoid unnecessary tax bills, reduce audit risks, and keep the focus on preserving wealth and relationships rather than fighting over paperwork.
Steps You Can Take Now
If your estate may be subject to federal estate tax, or if you’re a beneficiary of such an estate, these steps can help:
- Coordinate early with your executor. Ensure they understand reporting requirements and deadlines.
- Confirm whether your estate will file Form 706. Even when no estate tax is owed, some families file to preserve portability or GST exemptions, which still triggers basis reporting.
Gather complete asset inventories now. Document likely distributions to avoid confusion later. - Budget for compliance. Build professional fees for appraisers, accountants, and attorneys into your plan. Accurate valuations are the foundation of correct reporting.
- Educate beneficiaries. Ensure that heirs understand that the estate’s filing will adjust their inherited basis, so they’re not surprised when they eventually sell the assets.
Conclusion
Consistent basis reporting may sound technical, but it’s ultimately about protecting families from confusion, audits, and unnecessary taxes. The IRS’s final regulations simplify the process but also demand precision and timeliness from executors and heirs.
At Bascom Law, we guide families through these rules with clarity and care, ensuring that your legacy is transferred smoothly and without costly mistakes. To schedule a consultation, visit BascomLaw.com or call 770-285-5493.
Sources
Federal RegisterLegal Information Institute
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