Step-Up In Basis: What Does It Mean?

A step-up in basis is a tax provision that resets the cost basis of an inherited asset to its fair market value at the time of the original owner's death. This means that if you inherit stock or real estate that has significantly appreciated in value, you won't owe capital gains tax on the growth that occurred before you inherited it. For example, if a parent bought stock for $10,000 and it was worth $100,000 at death, the heir's cost basis becomes $100,000, effectively erasing $90,000 in potential capital gains. The step-up in basis is one of the most valuable tax benefits available in estate planning, and it's a key reason why holding appreciated assets until death can be a smart long-term strategy. It applies to assets passed through an estate, not those given as gifts during the owner's lifetime.