The Estate Desk

Last verified 2026-10-31; facts checked against the primary sources below

What is the step-up in basis on an inherited house or stock?

Adam Nathan

Reviewed by Adam Nathan, founder of The Estate Desk

Facts checked against the official sources on this page on October 31, 2026. Not legal advice.

Last verified: October 31, 2026

The short answer: The step-up in basis is the federal rule that resets the tax starting point of an inherited house or stock to its value when the owner died. The IRS says the basis of inherited property is generally its fair market value on the date of death, or on the alternate valuation date if the estate's personal representative chooses it (IRS Pub. 551). You prove that value with an appraisal for real estate and the market prices on the date of death for listed stock, the same methods the IRS uses for estate tax returns (Instructions for Form 706).

"Step-up" is the everyday name. The IRS calls it the basis of inherited property. The rule is the same in every state, with an extra rule for married couples in community property states.

What does basis mean, and why does the date of death matter?

Basis is the amount of your investment in property for tax purposes. It is used to figure gain or loss when the property is sold (IRS Pub. 551; IRS Topic 703).

If you buy property, your basis is usually what you paid (IRS Topic 703). If you inherit it, the law sets the basis at "the fair market value of the property at the date of the decedent's death" (26 U.S.C. § 1014(a)). What the person who died originally paid generally stops mattering.

Term What the IRS says Source
Basis The amount of your investment in property for tax purposes; used to figure gain or loss on a sale IRS Pub. 551
Fair market value (FMV) The price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts IRS Pub. 551
Basis of inherited property Generally the FMV at the date of death, or at the alternate valuation date if the personal representative chooses it IRS Pub. 551

Which basis rule applies to what you inherited?

Situation Your starting basis Source
Most inherited property, such as a house or shares of stock FMV on the date of death IRS Pub. 551
The estate chose alternate valuation FMV on the alternate valuation date IRS Pub. 551
The estate filed Form 706 and gave you a Schedule A (Form 8971) Generally the estate tax value on the Schedule A; certain beneficiaries must use it and cannot use a higher value IRS Pub. 551; Instructions for Form 8971
No Schedule A Basis can be determined using the appraised value at the date of death for state inheritance or transmission tax purposes IRS Pub. 551
You or your spouse gave appreciated property to the person within 1 year before death, and it came back to you The person's adjusted basis immediately before death, not FMV IRS Pub. 551
Community property, when one spouse dies The total value of the community property, including the survivor's half, generally becomes the basis of the entire property, if at least half is includible in the gross estate IRS Pub. 551
Spouses who were the only joint tenants with right of survivorship, or tenants by the entirety The survivor's cost for their own half, plus their basis in the half they inherited IRS Pub. 551
Traditional IRA Distributions are taxable as income in respect of a decedent, up to the decedent's taxable balance at death IRS Pub. 559

The community property states the IRS lists are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (IRS Pub. 551).

For inherited IRAs and their withdrawal deadlines, see the 10-year rule for inherited IRAs.

What is the alternate valuation date?

The executor of an estate that files a federal estate tax return can elect to value the estate's property as of 6 months after the date of death instead of on the date of death (26 U.S.C. § 2032).

Rule What the IRS says Source
The date Property not distributed, sold, or otherwise disposed of within 6 months is valued 6 months after the date of death Instructions for Form 706
Property sold or distributed sooner Valued on the date of distribution, sale, exchange, or other disposition Instructions for Form 706
All or nothing Alternate valuation cannot be applied to only part of the property Instructions for Form 706
When it is allowed Only if it decreases both the value of the gross estate and the estate and GST tax due Instructions for Form 706

How does the step-up work? (Example)

Example only. These are made-up round numbers to show the arithmetic. They are not from any real estate and are not a prediction of tax owed.

Your mother bought a house for $100,000. On the date she died, an appraisal valued it at $500,000. She also owned 100 shares of a listed stock she bought for $10 a share. On her date of death, the stock's highest selling price was $52 and its lowest was $48.

Item House Stock Source for the rule
What your mother paid $100,000 $1,000 (100 x $10)
Value on date of death $500,000 (appraisal) $50 a share, the mean of $52 and $48 Instructions for Form 706
Your starting basis $500,000 $5,000 (100 x $50) IRS Pub. 551
Later sale price (example) $520,000 $5,500
Gain figured from your basis $20,000 $500 IRS Topic 703
Gain if her original cost were used instead $420,000 $4,500
Type of gain Long term Long term IRS Pub. 559

The difference between the last two gain rows is the step-up. The example leaves out selling costs, improvements, and anything else that adjusts basis.

How do you prove the value on the date of death?

The IRS asks you to keep accurate records of everything that affects basis (IRS Pub. 551). For inherited property, that means a record of the date-of-death value. The Form 706 instructions show how the IRS expects those values to be set.

Asset How the IRS values it What to keep Source
House or other real estate Explain how the value was determined and attach copies of any appraisals The appraisal as of the date of death Instructions for Form 706
Listed stocks and bonds The mean between the highest and lowest selling prices on the valuation date The high and low prices for that date, and the brokerage or custodian statement Instructions for Form 706
Property reported on a Schedule A (Form 8971) The value on the Schedule A The Schedule A from the executor Instructions for Form 8971

For how the shares move into your name, see what happens to a brokerage account after death.

When you sell, the IRS instructions for Form 8949 say to enter "INHERITED" in column (b) and to attach an explanation when your basis is not your actual cost (Instructions for Form 8949).

When does Form 8971 apply?

Form 8971 is how an estate reports basis to the IRS and to beneficiaries. It applies only when the estate files a federal estate tax return.

Question What the IRS says Source
Who files it The executor of an estate required to file Form 706 or 706-NA, for returns filed after July 2015 Instructions for Form 8971
When Form 706 is required for 2026 deaths Gross estate plus adjusted taxable gifts and specific exemption over $15,000,000, or when the executor elects portability for a surviving spouse Instructions for Form 706
When Form 8971 is not required The gross estate plus adjusted taxable gifts and specific exemption is under the basic exclusion amount, or the Form 706 is filed only to elect portability, allocate GST exemption, or as a protective filing Instructions for Form 8971
What beneficiaries get A Schedule A listing the property they acquired, sent only to that beneficiary Instructions for Form 8971
Deadline The earlier of 30 days after Form 706 is due (with extensions) or 30 days after it is filed Instructions for Form 8971
Form 706 due date Within 9 months after the date of death Instructions for Form 706
Property not reported Cash, dollar bank deposits and CDs, money market fund shares, lump-sum life insurance, tax refunds, household effects that need no appraisal, and other excepted property Instructions for Form 8971

If you receive a Schedule A, you cannot use a value higher than the one it reports as your starting basis (Instructions for Form 8971). If the estate did not file Form 706, you will not get a Schedule A, and the date-of-death appraisal and price records above are your proof.

What should you do now?

  1. Write down the date of death. Every value on this page is tied to it.
  2. Order an appraisal of any real estate as of that date. Keep the full report.
  3. Save the date-of-death statement and prices for each brokerage account. Note the high and low price for each stock on that date.
  4. Ask the executor whether a Form 706 will be filed. If it will, ask whether you will receive a Schedule A.
  5. Keep these records until you sell, and after. You need them to report the sale.

If the house still has a loan on it, see what happens to the mortgage when you inherit a house.

Frequently asked questions

Can the value go down instead of up?

Yes. The rule uses fair market value at death, whatever it is. The IRS example in Publication 559 shows inherited stock bought at $30 a share with a date-of-death mean price of $22 (IRS Pub. 559).

This is general information about federal tax rules, not tax or legal advice. A sale, a large estate, a trust, or property in a community property state should be reviewed with a tax professional.

The Estate Desk helps families settle estates. theestatedesk.com

Primary sources