A separate, often more valuable benefit from estate tax planning — an inherited asset’s cost basis resets to its fair market value at death, eliminating built-in capital gains.
How it works
The stepped-up basis simply equals fair market value at the date of death. Subtracting the original (pre-death) basis from that figure shows how much built-in capital gain is eliminated for the heir.
What this does not include
This doesn’t include a separate consideration for jointly held or community property assets, which can have different step-up rules (a full step-up on both halves in community property states, versus only the decedent’s half in common-law states).
How to use this calculator
- Enter the decedent’s original cost basis and the fair market value at date of death.
Frequently asked questions
Does step-up in basis apply to all inherited assets?
Generally yes for most capital assets (stocks, real estate) — certain assets like traditional IRAs and other retirement accounts don’t receive a basis step-up, since they were never taxed as capital gain property.
What if the asset’s value declined before death?
The basis would step *down* to the lower fair market value, eliminating a built-in loss rather than a gain — the same mechanism works in either direction.
Is step-up in basis affected by estate tax?
No — step-up in basis applies regardless of whether the estate owes any federal estate tax, benefiting heirs of even modest estates well below the estate tax exemption.
