Q: In Puerto Rico, what is the legal citation or statute(s) that provided for a “step up” in a home’s value for the heirs.

A: For a person that died prior to January 1, 2018, the value of the deceased's participation in any real estate property reported in the estate tax return filed for that person is valued at fair market value, typically submitted along with an appraisal of the real estate's value at the time of the deceased's passing. After December 31, 2017, the real estate property must be valued at it's historical value, pursuant to the Property Registry's records. Section 2051.01(e) of the Puerto Rico Tax Code.

Ater the passing of each parent, once the heirs have been established either by the existence of a will or the issuance of a declaration of heirs, the estate tax return must be filed with the Puerto Rico Treasury (Hacienda). Given the dates on which your parents died, it is highly probable that each one's participation in the real estate property will be valued in different manners.

Nevertheless, at the time of liquidating the estate of both parents, an appraisal of the entire property may be used as the basis for the distribution made through a deed. Once the deed is filed with the Property Registry, the new value becomes the upated "stepped up" value for the home.

A: In Puerto Rico, the "step-up" in basis for inherited property follows the same principles as U.S. federal law. Under 26 U.S. Code § 1014, the basis of property acquired from a decedent is generally stepped up to the fair market value at the time of death. This allows the heirs to use the appraised value of the home as the new cost basis, reducing potential capital gains if they decide to sell the property later.

Since your mother passed in June 2024, the home’s value as of her date of death would serve as the new basis for you and your siblings. An appraisal will help establish this value, which will be important for both future tax implications and equitable distribution among the heirs.

It’s a good idea to consult with a professional experienced in Puerto Rico’s real estate and tax laws, as there may be local considerations to keep in mind when dealing with inheritance and property values. This way, you can ensure compliance with both federal and local tax regulations.