What is the step up in basis, and why do so many families hear about it after a loved one dies? It is a federal tax rule that can save heirs a lot of money. When you inherit property, the IRS generally resets its “basis” to its value on the day the owner died.
Basis is simply the number used to figure taxable profit when something is sold. As a result, years of growth in value can go untaxed. If you are planning ahead or settling an estate right now, this rule matters. Knowing what is the step up in basis can help you avoid paying more tax than the law requires.
What Is the Step Up in Basis, in Plain English?
Start with the word “basis.” In most cases, basis is what someone paid for an asset. When they sell it, the profit is the sale price minus the basis. That profit is called a capital gain, and it may be taxed.
The step-up rule comes from Section 1014 of the Internal Revenue Code. It says inherited property typically gets a new basis equal to its fair market value on the date of death. Fair market value means what a willing buyer would pay a willing seller.
For example, say your mother bought her home in 1990 for $100,000. It was worth $400,000 when she died. Your new basis is $400,000, not $100,000. If you sell it for $410,000, your taxable gain is only $10,000. Without the step-up, the gain would be $310,000.
There is also a second benefit. Under federal law, inherited property is treated as held “long-term,” even if you sell it the next week. Long-term gains are taxed at lower federal rates of 0%, 15%, or 20%.
The Exact Rules: Who Gets a Step-Up and Who Does Not
So what is the step up in basis worth in different situations? It depends on how the property passes. The rule applies to property received from someone who died. However, it does not apply to everything. Gifts made during life are different. Under Section 1015, a gift usually keeps the giver’s original basis. This is called “carryover basis.”
Married couples have special rules. When spouses own property jointly, typically only the half owned by the spouse who died gets a step-up. However, community property works differently. In community property states, both halves can get a new basis under Section 1014(b)(6). This is often called a “double step-up.”
| Situation | Basis the Heir or Survivor Gets |
|---|---|
| Property inherited through a will, trust, or intestacy | Value on date of death (stepped up) |
| Property received as a gift during life | Giver’s original basis (carryover) |
| Joint property of spouses in a common-law state | Half stepped up, half keeps old basis |
| Community property (AZ, CA, ID, LA, NV, NM, TX, WA, WI) | Both halves typically stepped up |
| Traditional IRAs and 401(k)s | No step-up (taxed as income when withdrawn) |
| Alternate valuation date elected on Form 706 | Value 6 months after death |
For example, California treats most property earned during marriage as community property under California Family Code Section 760. As a result, a surviving spouse there may get a full step-up on the family home. Alaska, Tennessee, South Dakota, Kentucky, and Florida also allow couples to opt into community property trusts.
Retirement accounts are a key exception. Section 1014(c) excludes “income in respect of a decedent.” That includes traditional IRAs and 401(k) plans. Heirs typically pay ordinary income tax on withdrawals.
How the Step-Up Connects to Estate Tax
Many people mix up the step-up with estate tax. They are separate. For 2026, the federal estate tax exemption is $15,000,000 per person. Most estates owe no federal estate tax at all. However, the step-up still applies to them.
When an estate does file IRS Form 706, the executor may need to report values to heirs. The executor is the person who manages the estate. Form 8971 is generally due within 30 days after Form 706 is due or filed. Heirs must then use those same values. The executor may also elect an “alternate valuation date” of 6 months after death. This is only allowed if it lowers both the estate’s value and the tax.
What to Do Next: Calm, Practical Steps
Once you understand what is the step up in basis, the next job is record-keeping. The most important step is to document date-of-death values. For real estate, many families get a written appraisal from a licensed appraiser. For stocks, ask the brokerage firm for date-of-death values. Most firms provide this when you transfer the account.
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Keep these records in a safe place. You may not sell the property for years. However, you will need the numbers when you do. Without proof, it can be hard to show your basis to the IRS.
The IRS explains these rules in Publication 551, Basis of Assets. It also offers Publication 559 for Survivors, Executors, and Administrators. Both are free. If the estate is large, involves a business, or includes community property, check with a licensed tax professional or attorney.
Planning ahead? Some families think about what is the step up in basis before giving away property. In many cases, giving a highly appreciated asset during life means the heir loses the step-up. Holding it until death may result in less tax. Every family is different, so get personal advice before deciding.
Frequently Asked Questions
Does the step-up in basis apply to an inherited house?
Yes, in most cases it does. The home’s basis typically resets to its value on the date of death. As a result, if you sell soon after, you may owe little or no capital gains tax.
What is the step up in basis if my parent gave me property before they died?
Typically, there is no step-up for lifetime gifts. Instead, you usually keep your parent’s original basis. For example, stock bought for $10,000 and gifted to you keeps that $10,000 basis.
Do inherited IRAs or 401(k)s get a step-up?
No, they generally do not. Traditional retirement accounts are excluded under Section 1014(c). However, Roth IRA withdrawals are often tax-free if the account rules were met.
Make Sure Your Plan Actually Works
A will or trust only does its job if the rest of your plan lines up. Two quick checks before you finish:
- Get your state’s exact rules — witnesses, notary, probate cost, and tax thresholds vary by state.
- Beneficiary forms beat your will — make sure your life-insurance beneficiaries are current, because named beneficiaries pass outside your will.
Sources & How to Verify
This guide is built from official sources. Always confirm the exact figure for your state:
- IRS — Estate & Gift Tax: irs.gov
- USA.gov — What to do when someone dies: usa.gov/death
- Uniform Law Commission (probate): uniformlaws.org
- Cornell Legal Information Institute: law.cornell.edu
- Your state’s probate court self-help portal and revenue department for the current statute and dollar figures.
Verified October 2026. Estate figures change — if you spot anything outdated, please contact us.
Related Guides
- Wills by State
- Trusts & Living Trusts by State
- Estate & Inheritance Tax by State
- Plain-English Estate Glossary
Disclaimer. This page is for general information only and is not legal or tax advice. Wills, probate, and estate-tax rules vary by state, county, and situation, and change over time. We are not a law firm, tax advisor, or financial planner, and we assume no liability for accuracy or completeness. For your specific situation — especially an active probate or a tax deadline — verify with your state’s court, statute, revenue department, or a licensed attorney in your state.