Step Up Basis vs Gift During Life 2026 Calculator
Compare two wealth transfer paths: gifting an appreciated asset during life (carryover basis under IRC §1015) versus passing it at death (step-up basis to fair market value under IRC §1014). The choice can save heirs tens of thousands in capital gains tax.
| Gift During Life (IRC §1015 — Carryover Basis) | |
| Heir receives basis | — |
| Future value at sale | — |
| Taxable capital gain | — |
| Combined federal + state CG rate | — |
| Total capital gains tax (Gift path) | — |
| Inheritance at Death (IRC §1014 — Step-Up Basis) | |
| Heir receives basis (stepped-up) | — |
| Future value at sale | — |
| Taxable capital gain (post-death only) | — |
| Total capital gains tax (Inheritance path) | — |
| Lifetime Gift Exemption Interaction | |
| 2026 unified exemption | $13,990,000 |
| Exemption already used | — |
| Exemption consumed by this gift | — |
| Exemption remaining after gift | — |
The wealth transfer playbook hinges on a single Internal Revenue Code distinction: gifts during life carry over the donor's original cost basis (IRC §1015), while inherited assets receive a step-up to fair market value at the date of death (IRC §1014). For appreciated assets, step-up at death typically saves heirs significant capital gains tax versus a lifetime gift.
How Step-Up Basis Works (IRC §1014)
When a US decedent dies owning an asset, the heir's basis resets to the asset's fair market value on the date of death. All pre-death appreciation escapes capital gains tax forever. If grandma bought stock for $50,000 that is worth $1 million at her death, the heir's basis is $1 million — sell immediately and owe zero capital gains. The $950,000 of pre-death gain is permanently wiped out for income tax purposes.
How Carryover Basis Works on Gifts (IRC §1015)
When you gift an appreciated asset during life, the donee takes your original cost basis plus any gift tax paid on appreciation. The unrealized gain travels with the asset. If the donee later sells, they pay capital gains tax on the spread between sale price and your original basis — the same tax bill you would have faced. Gifting moves the asset out of your estate but does not eliminate the embedded income tax liability.
When Gifting Still Wins
Despite the basis penalty, lifetime gifting can win when: (1) the asset is expected to appreciate significantly — future growth happens outside your estate at no transfer tax cost; (2) your taxable estate exceeds the $13.99M 2026 exemption — gift now to lock in the elevated exemption before potential sunset; (3) the donee is in a lower capital gains bracket (e.g., 0% rate up to $48,350 income in 2026); (4) the asset has limited appreciation potential — the gift removes future income from your tax base.
2026 Exemption Numbers and the OBBB Update
The 2026 unified estate and gift tax exemption is $13.99 million per individual ($27.98M per married couple). The One Big Beautiful Bill Act (OBBB, signed July 2025) made this exemption permanent and indexed for inflation — replacing the prior TCJA sunset risk. Annual exclusion gifts of $19,000 per donee in 2026 do not count against the lifetime exemption. State estate taxes still apply in 12 US states plus DC at much lower thresholds (Oregon $1M, Massachusetts $2M).
Last updated May 2026. Sources: IRC §1014 (basis of property acquired from decedent), IRC §1015 (basis of property acquired by gifts), IRS Rev Proc 2024-40 (2026 inflation adjustments), OBBB Act of 2025.