Step-Up in Basis

Step-up in basis is a tax rule that resets a property's cost basis to its fair market value on the date the owner dies. Cost basis is the figure used to measure taxable gain, so heirs who inherit a home start from its value at death rather than what the original owner paid. If a parent bought a house for 100,000 dollars decades ago and it is worth 500,000 dollars at death, the heirs' basis steps up to 500,000 dollars. Sell soon after for that amount and there is little or no taxable gain. This can save heirs a great deal compared with the capital gains exclusion alone. State estate rules vary, so confirm details with a tax advisor. See selling an inherited house in RI.