tax · 2026-05-01
Compute the federal capital gains tax SAVED via the step-up in basis at death — comparing inherited-and-sold vs gifted-during-life on appreciated property.
| Current asset value | $800,000 |
| Decedent's original basis | $200,000 |
| LTCG rate % | 20% |
| NIIT rate % | 3.8% |
| State capital gains rate % | 9% |
| Federal tax saved | $120,000 |
| NIIT saved | $22,800 |
| State tax saved | $54,000 |
Inherited assets get a "stepped-up basis" to fair market value at the decedent's death. The decedent's original cost basis is forgiven for capital gains purposes. The unrealized appreciation that built up over decades — gone, no tax.
unrealized gain = current value − original basis
tax saved = unrealized gain × (federal LTCG + NIIT + state)A $200k stock position bought decades ago, now worth $800k, with default rates: $600k gain × ~32.8% combined = $197k saved.
In community property states (CA, TX, AZ, NV, NM, ID, WI, LA, WA), surviving spouses get a double step-up — the entire community asset gets stepped up to FMV at first death, not just the deceased's half. This is one reason community property states matter for high-net-worth couples.
Several proposals would cap or eliminate step-up. Currently safe through at least 2025. Estate plans that ASSUME indefinite step-up are exposed; sensible planning hedges with partial gifting + grantor trusts.
Yes — basis = FMV at death, often confirmed by a date-of-death appraisal ($300-700). Heir can sell immediately for ~zero gain. This is the single biggest argument against gifting real estate during life: the donee gets your basis (and locks in massive gain); the inheritor gets stepped-up basis (and pays nothing).
Separate from step-up. 2024 lifetime exemption: $13.61M individual / $27.22M couple. Most decedents have ZERO estate tax due. Step-up applies regardless of estate size. The trade-off is: inheriting (step-up + estate tax above exemption) vs receiving lifetime gift (no step-up + uses gift exemption).
No — that's a 'wash sale' if it's a security loss, or a fully taxable event if it's a gain. The only ways to reset basis are: (1) inherit it, (2) sell it (and pay tax), (3) trade it in a 1031 (real estate only — defers, doesn't reset). The whole reason step-up matters: it's the only painless basis reset.