Did you sell property last year that you had inherited? Stocks? Bonds? A vacation cottage? If so, you deserve a share of a break that saves taxpayers billions of dollars each year.

You see, when someone dies, the tax bill on the profit from the deceased person's investments usually dies, too.

Assume that stock your dad bought for $50,000 was worth $100,000 when he died and left it to you. And, let's say you sold it during 2007 for $101,000. You owe tax only on the $1,000 of appreciation after you inherited it. Tax on the other $50,000 of profit is wiped out by what I like to call the Angel of Death tax break. (And, any commission you paid to sell it reduces the taxable profit dollar for dollar.)

Technically, what happens is your basis in the property -- that is, the value from which you measure your gain or loss -- is stepped-up to the asset's value on the date of death of the previous owner.

This also works if you owned property jointly with someone -- the way husbands and wives often own investments. In that case, when one spouse dies, at least half of the basis is stepped up to date-of-death value, so the tax on at least half the profit is forgiven. In community property states, the entire basis can be stepped up, wiping out the entire tax bill on previous appreciation.

One thing the step-up rule doesn't cover, unfortunately, is inherited retirement accounts, such as regular IRAs or 401(k)s. Money withdrawn from such accounts is taxed to you just as it would have been taxed to the previous owner.

But here's the important thing: If you sold inherited property in 2007, check the rules carefully before you file your return to make sure you don't overpay your tax.

MORE: Kiplinger.com | Your Money | Taxes | Column

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