What Assets Get a Step-Up in Basis at Death?

Most property a person owns outright at death gets its tax basis reset to fair market value on the date of death, so the answer to what assets get a step-up in basis at death is: real estate, taxable investment accounts, closely held business interests, tangible personal property, and cryptocurrency all qualify, while traditional retirement accounts, annuities, pensions, and other forms of untaxed income the decedent had already earned do not.¹ The distinction matters because a stepped-up basis erases the built-in capital gain the decedent would have owed tax on if they had sold during their lifetime.

What the Step-Up Actually Does

An heir who inherits qualifying property takes it with a new basis equal to its fair market value on the date the owner died, rather than the price the decedent paid for it years or decades earlier.² Stock a parent bought for $10,000 that was worth $200,000 on the date of death becomes $200,000 in the heir’s hands. Sell it the next week at that price and the taxable gain is zero.

The adjustment runs both ways. Property that had lost value steps down to the lower date-of-death figure, and the built-in loss disappears with the decedent.² Stock the decedent bought for $50,000 that was worth $30,000 at death gives the heir a $30,000 basis, and no one gets to claim the $20,000 loss. That’s why some advisors suggest selling depreciated holdings before death rather than passing them on.

Assets That Qualify

Real Estate

Property held solely in the decedent’s name receives a full basis adjustment.¹ Primary residences, second homes, rental buildings, and raw land all reset. A house bought for $150,000 and worth $600,000 at death gives the heir a $600,000 basis, and a sale at that price shortly afterward produces no capital gains tax.

Tangible Personal Property

Vehicles, jewelry, artwork, rare coins, and antiques take a new basis equal to their value on the date of death.² A painting the decedent bought for $5,000 that appraises at $80,000 starts at $80,000 for the heir. Unique items usually need a professional appraisal to establish that figure.

Stocks, Bonds, and Fund Shares

Securities held in taxable brokerage accounts receive an adjustment calculated as the average of the highest and lowest trading prices on the date of death.³ A stock that traded between $48 and $52 that day gives an heir a $50-per-share basis. When the date of death falls on a weekend or holiday, the valuation uses a weighted average of the mean prices from the nearest trading days on either side. A Sunday death, for example, might use $20 (Friday) and $23 (Monday) to arrive at $21.50 per share.

Cryptocurrency and Other Digital Assets

The IRS treats virtual currency as property, so inherited Bitcoin, Ethereum, and other digital holdings step up to fair market value on the date of death the same way stocks do.⁴ Valuing crypto is trickier than valuing exchange-listed stock because prices vary across trading venues and markets never close, so heirs should document the source and time of the quote they rely on.

Closely Held Business Interests

Shares in private corporations, LLC membership interests, and partnership interests all qualify.¹ Because these aren’t traded on an exchange, establishing fair market value requires a professional appraisal that looks at cash flow, underlying assets, and industry comparables. Appraisals for complex businesses generally run $5,000 or more.

For partnerships and multi-member LLCs, the heir’s individual ownership interest steps up automatically. Aligning the entity’s internal asset basis with the heir’s new outside basis, though, requires a Section 754 election to be in effect.⁵ Without it, the heir’s share of asset basis stays at the old figures and part of the tax benefit is lost.

Assets That Do Not Qualify

The main category excluded from step-up treatment is what tax law calls income in respect of a decedent — income the person had earned or was entitled to but had not yet paid tax on.¹ These assets keep the decedent’s original tax treatment, and heirs owe income tax when the money comes out.

Traditional IRAs and 401(k)s. Contributions were tax-deductible and distributions are taxed as ordinary income to the heir.
Pensions and deferred compensation. Payments to a beneficiary are taxed as income the same way they would have been to the decedent.
Annuities. The taxable portion continues to be taxable as it’s paid to the beneficiary.
U.S. savings bonds. Accrued but unreported interest is taxable to whoever redeems them.
Installment sale receivables. Remaining payments from a sale the decedent had structured on installments are taxed to the heir as they arrive.⁶

Roth IRAs sit outside this analysis. Contributions were already taxed, so qualified distributions to heirs are tax-free regardless of basis. Cash sitting in bank accounts and CDs also doesn’t step up, but only because cash has no appreciation to adjust.

How Spousal Titling Changes the Amount That Resets

For married couples, how an asset is titled controls how much of it steps up when the first spouse dies.

Joint Tenancy With Rights of Survivorship

Only the deceased spouse’s half receives a new basis. The survivor keeps their original basis on their own half. A couple that bought an asset for $300,000 now worth $1.2 million ends up, after one spouse’s death, with a $750,000 basis for the survivor: their original $150,000 plus the $600,000 stepped-up half.⁷

Community Property

In community property states, the entire asset resets when one spouse dies, provided at least half its value is included in that spouse’s estate.⁸ Using the same numbers, the survivor’s basis in the $1.2 million asset would be the full $1.2 million rather than $750,000. That $450,000 difference can translate into tens of thousands of dollars in capital gains tax saved on a future sale.

The full adjustment depends on the property actually being classified as community property under state law. Spouses in community property states who title assets as joint tenants can lose the double step-up. Reviewing deeds and account registrations, and in some cases spelling out in estate documents that jointly held property is intended to be community property, helps preserve the benefit.

When the Step-Up Is Blocked

Gifts Made Within One Year of Death

A person cannot gift appreciated property to a dying relative and then inherit it back with a stepped-up basis. If appreciated property is given to a decedent within one year of death and then passes back to the original donor or the donor’s spouse, no step-up occurs; the basis stays at the decedent’s adjusted basis immediately before death.¹ The rule only bites when the property comes back to the donor or the donor’s spouse. If it passes to any other heir, the normal adjustment applies.²

Irrevocable Trusts Not Included in the Estate

Assets in an irrevocable grantor trust that isn’t included in the grantor’s taxable estate do not step up at the grantor’s death, per Revenue Ruling 2023-2.⁹ The fact that the grantor paid income tax on the trust’s earnings during life doesn’t change the result. Where the trust is structured so its assets are included in the grantor’s gross estate, the step-up remains available. Anyone whose assets sit in an irrevocable trust should have an estate attorney confirm which category the trust falls into.

Documenting the New Basis

Whatever the asset, the heir needs proof of its value on the date of death. For publicly traded securities, brokerage statements and historical price data work. For real estate, closely held businesses, artwork, and other unique items, a contemporaneous appraisal is the standard. Real estate appraisals generally run from a few hundred to over a thousand dollars, and appraisals for complex personal property or businesses run higher.

Where an estate is large enough to file a federal estate tax return, the executor must also file Form 8971 and send each beneficiary a Schedule A reporting the value of what they received.¹⁰ Beneficiaries who receive a Schedule A must use that value as their basis. Claiming a higher figure on a later income tax return exposes the heir to a 20 percent accuracy-related penalty on any resulting underpayment.¹¹ Keep the Schedule A with your tax records, along with any appraisals or statements you relied on, because the IRS can ask you to prove basis years later when you sell.

1
Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent
2
Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
3
eCFR. 26 CFR 20.2031-2 Valuation of Stocks and Bonds
4
Internal Revenue Service. Notice 2014-21
5
Internal Revenue Service. FAQs for Internal Revenue Code (IRC) Sec. 754 Election and Revocation
6
eCFR. 26 CFR 1.691(a)-1 Income in Respect of a Decedent
7
Internal Revenue Service. Gifts and Inheritances
8
Internal Revenue Service. Publication 555 (12/2024), Community Property
9
Internal Revenue Service. Revenue Ruling 2023-2
10
Internal Revenue Service. Instructions for Form 8971 and Schedule A
11
eCFR. 26 CFR 1.6662-9 Inconsistent Estate Basis Reporting