Definition
Stepped-Up Basis
Also called: step-up in basis
Stepped-up basis is the tax rule that resets an inherited asset's cost basis to its fair market value at the owner's death. For an inherited house, appreciation during the previous owner's lifetime is generally never taxed to the heir — only gains after the date of death are.
The practical effect: selling an inherited house soon after inheriting often produces little or no capital gains tax, because the sale price sits near the date-of-death value. The step-up is why documenting that value — typically with a retrospective appraisal — matters so much.
Inherited property is also automatically treated as long-term for capital gains purposes, regardless of how quickly it sells. Renting the property afterward, state taxes, and estate specifics complicate the picture; the rule is general, the details belong to a tax professional.
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