Step-Up Basis Calculator 2026 (Inherited Property § 1014)

What Is Step-Up in Basis Under IRC § 1014?

Step-up in basis is a federal income-tax rule under Internal Revenue Code Section 1014 that resets the cost basis of inherited property to its fair market value on the decedent's date of death. The heir's holding period is also automatically deemed long-term, regardless of how long the decedent owned the asset. The practical effect: capital appreciation that occurred during the decedent's lifetime is permanently erased for income-tax purposes, so the heir can sell immediately and pay tax only on appreciation from the date-of-death value forward. Source: 26 USC § 1014.

This rule is one of the most powerful provisions in the U.S. tax code and a foundational element of estate planning. A house bought for $80,000 in 1985 that is worth $700,000 at the owner's death has, under § 1014, a stepped-up basis of $700,000 in the heir's hands. If the heir sells immediately for $700,000, the recognized gain is $0 — the lifetime appreciation of $620,000 is never taxed. Last updated: May 3, 2026.

Full vs Half Step-Up — Why Ownership Title Matters

Whether the heir gets a full step-up or only a half step-up depends on how the property was titled at death and the state's marital property regime. In separate-property states (most of the U.S.), property held in joint tenancy with right of survivorship between spouses gets only a half step-up — only the decedent's 50% interest is revalued under § 1014. The surviving spouse's half retains its original basis. In community-property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI, plus opt-in AK), IRC § 1014(b)(6) provides a special rule: BOTH halves of community property step up to FMV at the first spouse's death. This double step-up is one of the largest tax advantages of moving to or titling property in a community-property state.

Property held in a revocable living trust, by tenancy in common, or solely by the decedent generally receives a full step-up on the decedent's interest. Irrevocable trusts and gifted property follow different rules — gifts during life generally take a carryover (transferred) basis, not a step-up.

Assets That DO and DO NOT Step Up

Step-up applies to most capital assets passing through an estate: real estate, publicly traded stock, mutual fund shares, cryptocurrency, art, collectibles, and closely held business interests. Cryptocurrency is treated as property under IRS Notice 2014-21, so it qualifies for § 1014 step-up — heirs of large crypto holdings can eliminate substantial unrealized gains.

Step-up does NOT apply to: traditional IRAs, traditional 401(k) and 403(b) accounts, annuities, U.S. savings bonds, or any tax-deferred retirement account where the income tax character is "income in respect of a decedent" (IRD) under IRC § 691. The heir takes these assets with the decedent's original tax basis intact and pays ordinary income tax on every dollar withdrawn. Roth IRAs follow IRD treatment for required minimum distributions but distributions remain tax-free. The OBBB Act 2025 did not change § 1014; the step-up rule remains intact for 2026.

Alternate Valuation Date and the 6-Month Election

If the estate files Form 706 (federal estate tax return) and the alternate valuation date election under IRC § 2032 is made, all assets are valued at fair market value six months after the date of death — but only if doing so reduces both the gross estate AND the federal estate tax. The election is all-or-nothing: every estate asset uses the alternate date, not just the ones that fell. This election is most useful when the market drops sharply between death and 6 months later, but it is unavailable to small estates that don't file Form 706 (those below the federal estate-tax exemption — about $13.99 million per individual in 2025, indexed for inflation in 2026). Coordinate with the estate's executor and CPA before relying on the alternate value for income-tax basis.