What Is a Step-Up in Basis?

When you inherit an asset, its cost basis is "stepped up" to the fair market value on the date the previous owner died — not what they originally paid for it. This means if you sell an inherited asset immediately, you may owe little or no capital gains tax. For example, if a parent bought stock for $10,000 and it was worth $100,000 at death, the heir's basis is $100,000 — not $10,000. The step-up can eliminate decades of built-in gain. It's one of the most powerful estate planning tools available.