See how much capital gains tax the IRC §1014 step-up in basis eliminates for your heirs. Enter the original cost and the date-of-death value of any inherited asset — stocks, real estate, or a business interest — and compare the tax your heirs would owe with and without the step-up.
Situation: A parent bought stock for $50,000 and it is worth $400,000 at death. The heir sells immediately for $400,000 and is in the 15% long-term capital gains bracket.
Without the step-up: gain = $400,000 − $50,000 = $350,000 → tax of $52,500.
With the step-up: the basis resets to $400,000, so the gain is $0 → tax of $0.
Situation: An investment property bought for $250,000 is worth $800,000 at death. The heir sells it two years later for $850,000.
Step-up: basis becomes $800,000, so the heir reports only the $50,000 of post-death appreciation.
Note: If the property had been sold by the decedent instead, depreciation recapture at 25% would also have applied — the step-up eliminates that too.
Situation: A couple in Texas (a community property state) holds stock bought for $100,000, now worth $900,000. One spouse dies; the survivor's share plus the decedent's share both receive a step-up.
Effect: the entire $900,000 value becomes the new basis for the surviving spouse, eliminating the full $800,000 gain — not just half.
Situation: An heir receives a traditional IRA worth $500,000 with a $50,000 basis from nondeductible contributions.
Rule: IRAs, 401(k)s, and other income in respect of a decedent (IRD) do NOT receive a step-up. The heir pays ordinary income tax on distributions.
Planning: spend down IRAs first and hold appreciated capital assets for the step-up.
Under IRC §1014, when you inherit a capital asset, its cost basis is generally "stepped up" to the fair market value on the decedent's date of death. Any appreciation that occurred during the decedent's lifetime is erased for income tax purposes. If your parent bought a stock at $10 and it is worth $100 when they die, your basis is $100 — not $10 — so selling at $100 produces zero taxable gain. The step-up is sometimes called the "angel of death" loophole because it wipes out a lifetime of unrealized gains at no income tax cost.
| Receives a Step-Up ✅ | No Step-Up ❌ |
|---|---|
| Publicly traded stocks, ETFs, mutual funds | Traditional IRAs and 401(k)s |
| Real estate (investment and personal) | Annuities and most retirement accounts |
| Business interests and closely held stock | Income in respect of a decedent (IRD) |
| Collectibles, art, and personal property | Assets gifted during life (carryover basis) |
| Bonds and other capital assets | U.S. savings bonds (interest is IRD) |
Compare this with a lifetime gift: when you give an appreciated asset away while alive, the recipient takes your carryover basis and inherits the full unrealized gain. That is why "basis step-up vs. gift" is one of the most common estate planning trade-offs — holding until death can eliminate the capital gains tax entirely.
A step-up in basis resets the cost basis of an inherited asset to its fair market value at the owner's date of death. It eliminates capital gains tax on all appreciation that occurred during the decedent's lifetime, so heirs can sell immediately with little or no taxable gain.
No. Traditional IRAs, 401(k)s, annuities, and other income in respect of a decedent assets do not receive a step-up. Appreciated capital assets such as stocks, real estate, and business interests do. Assets gifted during life carry over the giver's original basis instead.
Under current law there is no dollar cap on the step-up in basis. It applies to the full fair market value of the asset at death, however large. Various proposals have suggested capping it at $1 million or imposing a holding period, but as of 2026 no such limit has been enacted.
In the nine community property states, both spouses' halves of community property receive a full step-up in basis when the first spouse dies. In common-law states, only the decedent's half is stepped up, so the survivor retains the original basis for their half.
Selling immediately typically produces no capital gains tax because the basis equals the date-of-death value. Holding past the date of death means any subsequent appreciation becomes taxable, so the decision should be based on investment merit rather than tax, unless the value has moved significantly.
No. Assets given away during the giver's lifetime carry the giver's original basis, and the recipient inherits the unrealized gain. This makes holding appreciated assets until death generally more tax-efficient for heirs than gifting them, though gifting can still be useful for reducing a taxable estate.
⚠️ Important Disclaimer: This calculator provides an educational estimate of the income tax effect of the IRC §1014 basis step-up. It does not model estate tax, generation-skipping transfer tax, the alternate valuation date election (IRC §2032), or state-level estate and inheritance taxes, which vary widely. Appraisals and date-of-death valuations must be documented. Consult an estate planning attorney or CPA before relying on these figures.