What is stepped-up basis at death?

The basic rule

Basis is the starting number for working out gain or loss when you sell. Publication 559 says the basis of property inherited from a decedent is generally one of four things: the fair market value on the date of death; the fair market value on the alternate valuation date, if the personal representative elected it on Form 706; the value under special-use valuation for farm or closely held business real property, if elected; or the decedent's adjusted basis in land to the extent of the value excluded as a qualified conservation easement. In most estates, the first is what applies.

The publication does not use the phrase stepped-up, but the effect is the result of the rule: if the property was worth more at death than the decedent paid, your basis is higher than theirs, so the built-in gain disappears for you. The rule also works the other way. If the value at death is lower than the decedent's adjusted basis, your basis is the lower number and the loss that existed before death is not carried over. Enter values in the calculator above to see the change.

The one-year gift exception

The rule has a trap. If you or your spouse gave appreciated property to an individual during the one-year period ending on that person's death, and you or your spouse later acquired the same property back from the decedent, your basis is the decedent's adjusted basis immediately before death, not the value at death. Appreciated property here means property whose fair market value was more than its adjusted basis on the day it was transferred to the decedent. The point is to stop people from handing an appreciated asset to someone near death to launder the gain.

Special-use valuation

If the personal representative elects special-use valuation for farm or other closely held business real property, a qualified heir receives the property valued on actual use rather than fair market value. A qualified heir is an ancestor, the spouse, or a lineal descendant of the decedent, a lineal descendant of the decedent's parent or spouse, or the spouse of any of these descendants. If the heir disposes of the property or stops using it for a qualifying purpose within ten years of death, additional estate tax can be due, and the heir may elect to increase basis to the fair market value at death, paying interest on the recapture tax from nine months after death. The details are in the Form 706 and 706-A instructions.

Jointly owned property

Joint ownership changes the arithmetic. For ordinary joint tenancy, a surviving tenant's new basis is the survivor's original basis plus the value of the part of the property included in the decedent's estate, minus depreciation or depletion allowed to the survivor. The publication's example: two siblings bought rental property for $60,000, with A. Maple paying $15,000 and F. Maple paying $45,000. When F. Maple died the property was worth $100,000 and $20,000 of depreciation had been allowed. A. Maple's basis is $15,000 plus $75,000 (three quarters of $100,000) minus $10,000 (half the depreciation), which is $80,000.

For a qualified joint interest, meaning spouses who are the only joint tenants or hold as tenants by the entirety, half the property is included in the decedent's estate regardless of who paid. The surviving spouse's basis is half the cost basis plus the value included in the estate, minus depreciation allowed to the survivor. In the publication's example with the same $60,000 cost and $100,000 value, the basis is $30,000 plus $50,000 minus $10,000, which is $70,000. The calculator above handles this second case when you choose the qualified joint interest option.

After you inherit

If you sell inherited property that is a capital asset, the gain or loss is long term regardless of how long you actually held it. If you depreciate inherited property, you must use MACRS; for joint interests, the original basis continues under the old method and the inherited part is depreciated using MACRS. Basis of inherited S corporation stock is reduced if there is income in respect of a decedent attributable to that stock. Property distributed in kind by the estate takes the estate's basis immediately before the distribution, plus gain or minus loss the estate recognized, with exceptions for specific bequests and real property whose title passes directly under local law.

Why valuation accuracy matters

A claimed value or basis that is 150 percent or more of the correct amount is a substantial valuation misstatement, and 200 percent or more is gross. If the misstatement causes an underpayment of more than $5,000, a 20 percent addition to tax can apply, rising to 40 percent for a gross misstatement. The 20 percent addition may be waived if the value was based on a qualified appraisal by a qualified appraiser plus a good faith investigation. No waiver is available for the 40 percent addition. Keep the appraisal or the date-of-death valuation records in your files.

Sources

• IRS Publication 559, Survivors, Executors, and Administrators (2025): Other Tax Information, Basis of Inherited Property (Exception for appreciated property, Special-use valuation, Joint interest, Qualified joint interest, Depreciation, Valuation misstatements, Holding period, Property distributed in kind). Read November 2, 2026.

Edition read: Publication 559 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.