Step-Up in Basis
Inherited assets reset to market value at the date of death.
What is Step-Up in Basis?
Heirs receive a basis equal to fair market value on the date of death, erasing the decedent's unrealized capital gain. This is why holding appreciated assets until death can beat gifting them during life, and why it shapes so much estate planning.
Step-Up in Basis: a worked example
Stock bought at $50,000, worth $500,000 at death: heirs take a $500,000 basis and the $450,000 gain is never taxed.
More terms in Taxes & Account Types
Capital Gain (Short-Term vs. Long-Term)
Profit on a sale, taxed by how long you held it.
Cost Basis
What you paid, used to compute gain or loss on sale.
Wash Sale Rule
A loss is disallowed if you rebuy the same security within 30 days.
Tax-Loss Harvesting
Realizing losses to offset gains and up to $3,000 of ordinary income.
Qualified Dividend
A dividend taxed at long-term capital gains rates.
Traditional IRA / 401(k)
Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal.
Roth IRA / Roth 401(k)
Pay tax now, grow tax-free, qualified withdrawals are untaxed.
Required Minimum Distribution (RMD)
Mandatory annual withdrawals from tax-deferred accounts starting at 73.