Will I Receive a Step-Up In Basis For The Appreciated Property I Inherited?

A step-up in basis is an increase in the cost basis of inherited property, which reduces the capital gains tax owed by the heir. However, there are some exceptions and distinctions to be aware of when determining if a step-up in basis is applicable. The “Will I Receive A Step-Up In Basis For The Appreciated Property I Inherited?” flowchart helps guide individuals in determining their cost basis for inherited property, considering factors such as:

Community property states: In these states, all assets acquired during marriage are considered equally owned by both spouses, which means the entire basis of the asset is stepped up for the surviving spouse. Types of property that receive a step-up: Generally, appreciated property that is inherited receives a step-up in basis, including real estate, stocks, bonds, and mutual funds. However, some property may not receive a step-up, such as assets held in a revocable living trust or assets gifted during the decedent's lifetime. Alternate valuation date: If the executor of the estate elects to use the alternate valuation date, the basis of the property will be based on its fair market value on that date, rather than the date of the decedent's death. Ownership: The type of ownership of the property also affects the basis. For example, if the property is held as joint tenants with right of survivorship (JTWROS), the basis of the property is stepped up for the surviving joint tenant. If the property is held as tenants in common, each owner's basis is stepped up based on their ownership percentage. By considering these factors, individuals can determine if they will receive a step-up in basis for the appreciated property they inherited, which can help them make informed decisions about their tax obligations and financial planning.

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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.