What is a step-up in basis at death?

Under IRC Section 1014, when you inherit an asset, its cost basis is reset to its fair market value on the date of the original owner's death. This 'step-up' erases all the capital gain that built up during the deceased's lifetime. If the heir sells the asset immediately at that value, there is little or no capital gains tax, because the gain is measured from the stepped-up basis, not the original purchase price.

Do I pay capital gains tax on inherited stock or property?

Generally only on appreciation that happens after you inherit it. Because the basis steps up to the date-of-death value, if you sell an inherited asset shortly after inheriting it, your taxable gain is close to zero. Inherited assets are also automatically treated as long-term, so any later gain qualifies for the lower long-term capital gains rates regardless of how long you actually hold it.

Is there a step-up in basis for gifts given during someone's lifetime?

No. Gifts use 'carryover basis' — you inherit the giver's original cost basis, not a stepped-up value. This is the single biggest mistake in family wealth transfer: gifting a highly appreciated asset during life passes the built-in capital gain to the recipient, whereas leaving the same asset at death gives them a stepped-up basis and can wipe the gain out. For appreciated assets, holding until death is usually far more tax-efficient than gifting.

Did the One Big Beautiful Bill change the step-up in basis in 2026?

The step-up itself (Section 1014) was left intact. What the OBBBA changed is the estate tax exemption: starting January 1, 2026 it is a permanent $15 million per individual ($30 million per married couple), indexed for inflation from 2027, with no sunset. That means the vast majority of estates owe no federal estate tax and heirs still receive the full stepped-up basis — making the benefit more valuable than ever.

Step-Up in Basis 2026: Why Inherited Assets Can Be Sold Tax-Free

The Quiet Magic of Section 1014

Imagine your grandmother bought Coca-Cola stock in 1965 for $2,000. By the time she passes in 2026, it's worth $400,000. If she'd sold it the day before she died, she'd owe capital gains tax on a $398,000 gain. But she didn't sell. She left it to you. And the moment you inherit it, that $398,000 of built-in gain simply... disappears.

That's the step-up in basis. It's one rule, Section 1014 of the tax code, and it quietly erases more capital gains tax than almost any other provision. Most people have never heard of it. The wealthy have built entire fortunes around it.

§ 01How the Step-Up Works

Your "basis" in an asset is what the tax system treats as your cost — the number your eventual gain is measured from. For something you bought, it's the purchase price. For something you inherit, it's the fair market value on the date the previous owner died.

So in the example above, your basis in that Coca-Cola stock isn't grandma's $2,000. It's the $400,000 it was worth when she died. Sell it the next week for $400,000 and your gain is $0. Sell it years later for $450,000 and your gain is just $50,000 — only the appreciation that happened on your watch.

There's a bonus, too: inherited assets are automatically treated as long-term, no matter how briefly you hold them. So even a quick sale qualifies for the lower 0/15/20% long-term rates rather than short-term ordinary rates. Curious what that later gain would cost? The capital gains calculator will show it.

§ 02Why Gifting Is the Opposite

Here's the mistake that costs families real money. People assume that giving an asset away during life is the generous, tax-smart move. For appreciated assets, it's often the worst thing you can do.

Gifts don't get a step-up. They use carryover basis — the recipient inherits your original cost. So if grandma had gifted you that stock while alive, your basis would be her $2,000, and selling it would trigger tax on the full $398,000 gain. By instead leaving it to you at death, the basis steps up to $400,000 and the gain evaporates.

Gift the cash. Bequeath the appreciation. Reversing those two is how families overpay.

The rule of thumb: give away cash or assets that haven't appreciated much during your lifetime, and hold your most-appreciated assets until death so your heirs get the step-up. It feels counterintuitive — but the tax math is decisive.

§ 03The $15M Exemption Is Now Permanent

"But isn't there an estate tax?" Yes — and this is where 2026 brought a big change. For years, the worry was that the estate tax exemption would sunset back to roughly $7 million at the end of 2025, pulling more families into estate tax.

That didn't happen. The One Big Beautiful Bill set the federal estate tax exemption at a permanent $15 million per individual — $30 million for a married couple — effective January 1, 2026, indexed to inflation from 2027, with no sunset clause. Unlike the 2017 tax law, this one doesn't expire.

The practical upshot: the overwhelming majority of estates now fall under the exemption and owe zero federal estate tax. So heirs get the stepped-up basis and pay no estate tax — the best of both worlds. Estate tax only enters the picture for the wealthiest families above the $15M/$30M line, and even there, the step-up on the assets still applies.

§ 04Buy, Borrow, Die

You've maybe heard this phrase thrown around in debates about how billionaires pay so little tax. The step-up in basis is the "die" that makes the whole thing work.

The strategy: buy appreciating assets and never sell them (selling triggers tax). Borrow against them when you need cash — loans aren't taxable income, and the interest can be cheap relative to the tax you'd pay on a sale. Then die holding the assets, at which point your heirs get a stepped-up basis and the lifetime of unrealized gain is never taxed at all. The loans are repaid from the estate.

It's entirely legal, and it's the single biggest reason the very wealthy can hold enormous appreciated positions and report modest taxable income. Whether that should be the law is a live political fight — periodic proposals to tax gains at death, or to end the step-up, surface every few years. As of 2026, the step-up stands, fully intact.

§ 05The Double Step-Up for Spouses

One nuance worth knowing if you're married. In the nine community-property states (California, Texas, Washington, Arizona, Nevada, and others), when one spouse dies, the entire community-property asset — both halves — gets a step-up, not just the deceased spouse's half.

In common-law states, only the deceased's share steps up; the surviving spouse keeps their original basis on their half. So a surviving spouse in California who inherits the couple's long-held stock gets a full step-up on all of it, while one in New York gets it on only half. For couples with big appreciated assets, this difference can be worth a fortune — and it's a genuine factor in where some retirees choose to live.

§ 06What This Means for You

You don't have to be wealthy for the step-up to matter. A few practical points:

Inheriting assets? Get a date-of-death valuation. That's your basis — document it, because it's what protects you from tax on the previous owner's gains when you eventually sell.
Planning your own estate? Resist the urge to gift highly appreciated assets during life. Holding them to death gives your heirs the step-up.
Sitting on big gains in retirement? The "never sell, step up at death" path can beat selling and paying tax now — though it has to be weighed against your actual cash needs and diversification.
Married with appreciated assets? Community-property rules can deliver a full double step-up. Worth a conversation with an estate attorney.

§ 07Key Takeaways

Inherited assets get a stepped-up basis to date-of-death value, erasing a lifetime of capital gain — and count as long-term automatically.

Gifts don't — they carry over the giver's basis, so holding appreciated assets until death usually beats gifting them.

The $15M / $30M estate exemption is permanent from 2026, so most heirs get the step-up with no estate tax at all.

Community-property spouses can get a full double step-up on the whole asset, not just half.

For how the gains on what you sell during life are taxed, see the 2026 capital gains guide, the home-sale exclusion, and the calculator.

Sources: IRC §1014 (basis of property acquired from a decedent) and §1015 (basis of gifts); One Big Beautiful Bill Act (2025) estate-tax exemption; IRS estate and gift tax guidance. General information, not legal or tax advice.