Step-up in basis

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A special provision of the U.S. tax code, known as step-up in basis, applies to appreciated taxable assets at death.

In most instances, a property's tax basis is stepped-up to the fair market value at the time of the decedent's death.

If both of the following conditions hold, an election can be made to instead use a valuation date six months after the date of death. The 2 conditions are:


 * The estate must be subject to federal estate tax (in 2020, estates greater than $11,580,000 are subject to federal tax)
 * The use of the alternate date must reduce the value of the gross estate and the amount of federal estate tax due

Step-up in basis can differ, however, depending on how the property is titled.

Property titling and step-up in basis
The actual tax basis of stepped-up property will differ depending on how the property is titled.

Sole property
For sole ownership and sole or separate property held in a revocable trust the death of the asset owner results in the asset's stepping-up in value.

Joint tenancy
For assets held in joint tenancy, stepped-up valuation applies only to the deceased partner's share of the property.

Community property
Community property steps up whenever a spousal partner dies.

Step-down valuation
If a decedent's adjusted basis in property is higher than the fair market value, the beneficiary's basis will equal the fair market value of the property at the time the decedent dies.