Tax & Legal

Step-Up in Basis

The tax rule that resets an inherited asset’s cost basis to its value at the date of death, which can substantially reduce capital gains tax if the heir sells.

If someone bought a property decades ago and it appreciated significantly, an heir who inherits it generally takes it at its date-of-death value rather than the original purchase price. Selling shortly afterward may produce little or no taxable gain.

This is one reason gifting an appreciated asset during life is not automatically the generous move it appears to be — a lifetime gift generally carries the original basis with it.

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Related Terms

Estate Tax

A tax on the transfer of an estate at death. The federal exemption is high enough that very few estates owe it, though some states impose their own with far lower thresholds.

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