Step-up in basis
TaxesDefinition
Inherited assets receive a "stepped-up" cost basis equal to the fair market value at the date of death. Erases all unrealized capital gains accumulated during the decedent's lifetime, so heirs can sell immediately with no capital gains tax.
One of the most powerful US tax provisions for high-net-worth families. Combined with estate tax exemptions, allows multi-generational wealth transfers with minimal taxation.
One of the most powerful US tax provisions for high-net-worth families. Combined with estate tax exemptions, allows multi-generational wealth transfers with minimal taxation.
Example
Parent buys stock at $100K, holds for 30 years until death when it's worth $1M. Heir inherits with a $1M basis. Heir sells immediately for $1M → $0 capital gains. The $900K appreciation escapes income tax permanently.