Step-Up in Basis Calculator
The step-up in basis is one of the most valuable tax provisions in the US tax code for inherited assets. When a person dies, assets held in their taxable estate receive a new cost basis equal to their fair market value on the date of death. Heirs who then sell those assets immediately owe no capital gains tax on decades of appreciation that built up during the decedent's lifetime. This tax benefit can be enormous for highly appreciated assets such as long-held real estate, stock in a family business, or a diversified investment portfolio accumulated over many decades. This calculator shows the original embedded gain, the tax that would have been owed had the decedent sold, the stepped-up basis, and the capital gains tax saved by the beneficiary.
Step-up in basis formula (IRC Sec 1014)
Stepped-Up Basis = Fair Market Value at Date of Death
Original Embedded Gain = FMV - Original Basis
Tax Would Have Been Owed (pre-step-up) = Original Embedded Gain x LT Rate
Heir's Taxable Gain = Sale Price - Stepped-Up Basis
Heir's Capital Gains Tax = max(0, Heir's Taxable Gain) x LT Rate
Tax Saved = Tax Would Have Been Owed - Heir's Capital Gains Tax
Key rules for inherited assets (IRC Sec 1014)
- Step-up applies to assets in taxable accounts included in the gross estate (stocks, bonds, real estate, business interests).
- No step-up for assets inside IRAs, 401(k)s, annuities, or other tax-deferred accounts.
- Community property: both halves step up when one spouse dies, in the eight community property states.
- A "step-down" occurs if the asset is worth less than its basis at death; this reduces the heir's basis.
- Holding period of inherited assets: automatically treated as long-term, regardless of how long the heir holds the asset.
Step-up in basis: frequently asked questions
What is a step-up in basis?
When you inherit an asset, its cost basis for capital gains purposes is stepped up (or stepped down) to the fair market value at the date of the decedent's death, under IRC Section 1014. This means the beneficiary can sell the asset immediately after inheriting it and owe zero capital gains tax, even if the asset appreciated substantially during the decedent's lifetime.
Does the step-up apply to assets in IRAs and 401(k)s?
No. The step-up in basis applies only to assets held in taxable accounts that are included in the decedent's gross estate. Assets inside traditional IRAs, 401(k)s, and other tax-deferred accounts do not receive a step-up in basis because those withdrawals are taxed as ordinary income regardless of when the account was inherited.
What is an alternate valuation date?
The executor of an estate may elect to use an alternate valuation date of six months after the date of death, provided the election reduces both the gross estate value and the estate tax. If this election is made, the step-up in basis is to the fair market value on the alternate valuation date rather than the date of death.
How does the step-up work for community property?
In community property states (California, Texas, Arizona, and others), both halves of community property receive a step-up in basis upon the death of either spouse. This is more favourable than the federal rule for married couples in common-law states, where only the deceased spouse's half receives a step-up.
Will the step-up in basis rule change?
The step-up in basis rule has been debated by Congress many times. There have been proposals to replace it with a 'carry-over basis' system where heirs inherit the decedent's original basis. As of June 2026, the step-up rule under IRC Section 1014 remains in effect. Monitor future tax legislation, especially around estate tax reform.
Official sources
- IRC Section 1014: Basis of Property Acquired from a Decedent.
- IRS Publication 559: Survivors, Executors, and Administrators.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.