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WEALTH MANAGEMENT • Estate Planning & Basis Rules
Step-Up in Basis: Definition, How It Works, Tax Rules & Examples
Complete guide to step-up in basis — Section 1014 rules, community property vs. common law states, real estate and stock inheritance, and estate planning strategies.
By Rachel Bernstein, JD, LL.M. in Taxation • Reviewed by Arthur Vance, CFP®, ChFC® • November 4, 2026
Key Takeaways
- Under IRC Section 1014, an inherited capital asset receives a new tax basis equal to fair market value on the decedent's date of death.
- Decades of embedded appreciation across real estate, equity portfolios, and closely-held businesses can be passed to heirs without capital gains tax liability.
- Community property states offer a 'double step-up' where 100% of community property basis resets upon the death of the first spouse.
- Assets held inside irrevocable grantor trusts or gifted during lifetime do not qualify for a date-of-death step-up in basis.
Estate Tax Thresholds (2026) Federal Statutory
Lifetime Basic Exclusion Amount $13,990,000
Married Filing Jointly $27,980,000 (Portability)
Annual Gift Tax Exclusion $19,000
Per Recipient / Year $38,000 Gift Splitting
Top Federal Estate Tax Rate 40.0%
Above Lifetime Exclusion Form 706 Return
Essential Wealth Management & Estate Guides
Wealth Management
Step-Up in Basis: Definition, How It Works, Tax Rules & Examples
Complete guide to step-up in basis — Section 1014 rules, community property vs. common law states, real estate and stock inheritance, and estate planning strategies.
By Rachel Bernstein, JD, LL.M. in Taxation
Wealth Management
Revocable Living Trust: Definition, Benefits, Costs, and Rules
Complete guide to revocable living trusts — how trust funding works, avoiding probate court costs, successor trustee duties, incapacity planning, and 2026 tax rules.
By Arthur Vance, CFP®, ChFC®