Who ranks for “stepped-up basis inherited property”

A step-up in basis resets the tax value of an inherited asset to its fair market value on the date of the previous owner's death, which erases past capital gains and lowers future taxes for heirs.

How It Works

Cost Basis Reset: The original purchase price of the asset is replaced by its market value at death. Capital Gains Savings: If an heir sells the asset soon after inheriting it at that same value, they owe zero capital gains tax. Tax Elimination: Any appreciation that happened during the original owner's lifetime is completely wiped out for tax purposes.

Key Rules and Examples

Real Estate and Stocks: The Fidelity Guide to Step-Up in Basis notes that physical property and taxable brokerage accounts commonly qualify for this adjustment. For example, if a home was bought for $100,000 and is worth $500,000 when the owner dies, the new basis for the heir becomes $500,000. Gifts vs. Inheritances: Receiving property as a gift during someone's lifetime uses a "carryover basis" (you keep the original low purchase price), whereas an inheritance receives the stepped-up value. Exceptions: Retirement accounts like traditional IRAs and 401(k)s do not get a step-up in basis and are taxed as ordinary income when withdrawn. Community Property: In community property states, a surviving spouse often receives a full step-up in basis on both halves of jointly owned property.

You can read more about definitions and mechanics on Investopedia's Step-Up in Basis Overview.

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