The tax benefits are transferred to heirs, but there is no step-up in basis for the deferred capital gain portion.
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How is an QOF investment treated if the investor dies?
Will the tax benefit be transferred to the investor’s heirs?
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The heirs would step into the shoes of the decedent taxpayer. Therefore, not only will the tax benefits be transferred, but also the obligations. In other words, they would pick up the income at the sooner of Dec. 31, 2026 or an inclusion event.
Generally, the heirs of a QOF investor can inherit the investor's interest in the QOF without adverse tax consequences. Effectively, the regulations allow heirs to step into the shoes of the deceased investor without any loss of tax benefits or holding period.
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