For purchased property, cost basis is the purchase price plus capital improvements, minus depreciation. For inherited property, the basis 'steps up' to FMV at death, which usually wipes out decades of accumulated gain for tax purposes.
Related terms
Step-Up in Basis
A federal tax rule (IRC §1014) that resets an inherited asset's cost basis to its fair market value on the date of the original owner's death.
Probate
The court-supervised process of validating a will, paying the deceased's debts, and transferring remaining assets to heirs.
Inheritance Tax
A state-level tax paid by the heir on the value of property received from a deceased person.