Step-Up in Basis for Inherited Assets

Step-Up in Basis for Inherited Assets

The Step-Up in Basis for Inherited Assets refers to the adjustment in the tax basis of an asset that occurs when it is inherited. Under this rule, the basis of the inherited asset is stepped up to its fair market value (FMV) at the date of the decedent’s death, rather than the original purchase price paid by the decedent.

For example, if a parent bought a property for $100,000, and at the time of their death, the property has a fair market value of $300,000, the recipient (beneficiary) would inherit the property with a basis of $300,000. This adjustment can significantly reduce capital gains tax liability when the beneficiary decides to sell the asset, as taxes are calculated based on the difference between the sale price and the inherited basis.