The Step-Up in Basis: A Tax Benefit Families Miss When Inheriting a Home
One of the most important tax concepts when inheriting a property is the step-up in basis — it can save you a considerable amount in capital gains. Here’s how it works in plain English.
Watch the video, or read the full guide below.
One of the most important financial concepts when it comes to inheriting a property is something called the step-up in basis — and it can save you a considerable amount of money in taxes.
What the step-up in basis means
When you inherit a property, its value is “stepped up” to the current market value at the time of death. Your cost basis for tax purposes resets to that date-of-death value — not what the original owner paid for it decades ago.
A simple example
Say a house was bought long ago for a small fraction of today’s value, and at the time of death it’s worth $900,000. If you then sell the property for $910,000, you’re generally taxed only on that $10,000 of gain — not on the decades of appreciation. That’s a huge difference.
This is why selling relatively soon after inheriting can mean little to no capital gains tax. Every situation is different, so consult your CPA — but understanding the step-up in basis helps you make the right decision about what to do with the property.
Frequently asked questions
What is the step-up in basis? +
It resets the property’s tax cost basis to its fair market value at the date of death, so you’re taxed only on appreciation after that point.
Do I pay capital gains if I sell an inherited home right away? +
Often very little. Because of the step-up in basis, gains are measured from the date-of-death value, so a quick sale typically triggers little to no capital gains. Confirm with your CPA.
This guide is general education, not legal or tax advice. Every estate is different — for specifics, consult your attorney or CPA, or reach out to Anne directly.
Have questions about your situation?
I help families navigate probate and trust real estate across Ventura County and Los Angeles County.