A business owner's estate sells business assets after the owner's death. The heirs benefit from:
- No step-up - inherited business assets retain the decedent's historical basis.
- A partial step-up equal to 50% of the appreciation.
- A step-up in basis to the FMV at the date of death (or alternate valuation date) - allowing heirs to sell the business assets with little or no capital gain if sold shortly after death. (correct answer)
- A step-up in basis only for real property, not depreciable equipment or goodwill.
Explanation: Inherited assets receive a basis equal to FMV at death under Section 1014 - the step-up eliminates the unrealized appreciation in the hands of the decedent. Answer C is correct. Full step-up is provided (A). 50% step-up (B) is not the law. The step-up applies to all inherited property (D).