How is the basis for property acquired through inheritance affected if its value decreases after the owner's death?

When property is acquired through inheritance, the basis of that property is generally stepped up (or down, in case of a loss) to its fair market value at the time of the owner's death. This means that if the property loses value after the owner's death, it does not affect the basis, which remains locked in at the fair market value as of the date of death. This stepped-up basis helps to minimize potential capital gains tax liability when the inherited property is eventually sold, as any appreciation or depreciation in value that occurred after the owner's death does not alter the basis.

This principle is established under the Internal Revenue Code and is particularly beneficial for heirs, as it allows them to manage the tax implications more effectively when they dispose of the inherited property. Thus, the correct understanding ensures that the basis remains unaffected by any subsequent fluctuations in market value after the owning decedent's passing.