[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1014-3]

[Page 44-45]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1014-3  Other basis rules.

    (a) Fair market value. For purposes of this section and Sec. 
1.1014-1, the value of property as of the date of the decedent's death 
as appraised for the purpose of the Federal estate tax or the alternate 
value as appraised for such purpose, whichever is applicable, shall be 
deemed to be its fair market value. If no estate tax return is required 
to be filed under section 6018 (or under section 821 or 864 of the 
Internal Revenue Code of 1939), the value of the property appraised as 
of the date of the decedent's death for the purpose of State inheritance 
or transmission taxes shall be deemed to be its fair market value and no 
alternate valuation date shall be applicable.
    (b) Property acquired from a decedent dying before March 1, 1913. If 
the decedent died before March 1, 1913, the fair market value on that 
date is taken in lieu of the fair market value on the date of death, but 
only to the same extent and for the same purposes as the fair market 
value on March 1, 1913, is taken under section 1053.
    (c) Reinvestments by a fiduciary. The basis of property acquired 
after the death of the decedent by a fiduciary as an investment is the 
cost or other basis of such property to the fiduciary, and not the fair 
market value of such property at the death of the decedent. For example, 
the executor of an estate purchases stock of X company at a price of 
$100 per share with the proceeds of the sale of property acquired from a 
decedent. At the date of the decedent's death the fair market value of 
such stock was $98 per share. The basis of such stock to the executor or 
to a legatee, assuming the stock is distributed, is $100 per share.
    (d) Reinvestments of property transferred during life. Where 
property is transferred by a decedent during life and the property is 
sold, exchanged, or otherwise disposed of before the decedent's death by 
the person who acquired the property from the decedent, the general rule 
stated in paragraph (a) of Sec. 1.1014-1 shall not apply to such 
property. However, in such a case, the basis of any property acquired by 
such donee in exchange for the original property, or of any property 
acquired by the donee through reinvesting the proceeds of the sale of 
the original property, shall be the fair market value of the property 
thus acquired at the date of the decedent's death (or applicable 
alternate valuation date) if the property thus acquired is properly 
included in the decedent's gross estate for Federal estate tax purposes. 
These rules also apply to property acquired by the donee in any further 
exchanges or in further reinvestments. For example, on January 1, 1956, 
the decedent made a gift of real property to a trust for the benefit of 
his children, reserving to himself the power to revoke the trust at 
will. Prior to the decedent's death, the trustee sold the real property 
and invested the proceeds in stock of the Y company at $50 per share. At 
the time of the decedent's death, the value of such stock was $75 per 
share. The corpus of the trust was required to be included in the 
decedent's gross estate owing to his reservation of the power of 
revocation. The basis of the Y company stock following the decedent's 
death is $75 per share. Moreover, if the trustee sold the Y Company 
stock before the decedent's death for $65 a share and reinvested the 
proceeds in Z company stock which increased in value to $85 per share at 
the time of the decedent's death, the basis of the Z company stock 
following the decedent's death would be $85 per share.
    (e) Alternate valuation dates. Section 1014(a) provides a special 
rule applicable in determining the basis of property described in Sec. 
1.1014-2 where--
    (1) The property is includible in the gross estate of a decedent who 
died after October 21, 1942, and
    (2) The executor elects for estate tax purposes under section 2032, 
or section 811(j) of the Internal Revenue Code of 1939, to value the 
decedent's gross estate at the alternate valuation date prescribed in 
such sections.

In those cases, the value applicable in determining the basis of the 
property is not the value at the date of the decedent's death but (with 
certain limitations) the value at the date one year after his death if 
not distributed, sold, exchanged, or otherwise disposed of in

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the meantime. If such property was distributed, sold, exchanged, or 
otherwise disposed of within one year after the date of the decedent's 
death by the person who acquired it from the decedent, the value 
applicable in determining the basis is its value as of the date of such 
distribution, sale, exchange, or other disposition. For illustrations of 
the operation of this paragraph, see the estate tax regulations under 
section 2032.