Who proves the stepped-up value?

The heir is responsible. A retrospective appraisal dated to the death is the gold standard.

Does step-up apply if the heir lives in the house first?

Yes — moving in doesn't change basis. If the heir later sells after living there two of five years, the home-sale exclusion can stack on top of the step-up.

Step-Up in Basis Explained — Inherited Property Tax

Step-Up in Basis: The Rule That Saves Heirs the Most Money

Step-up in basis is the federal tax rule (IRC §1014) that resets an inherited property's cost basis from what the deceased originally paid to its fair market value on the date of death. It is the single largest tax benefit available to most heirs and is the reason capital gains on an inherited house are usually small or zero.

Written by the Inherited Home Buyers editorial team· Reviewed by Editorial Tax Reviewer (Placeholder) (CPA)· Last updated 2026-05-25

What is the step-up in basis, exactly?

For property received from a decedent, the heir's basis equals the FMV on the date of death (or the alternate valuation date six months later, if elected by the executor). The original purchase price the decedent paid becomes irrelevant for the heir.

Why was this rule created?

Without it, decades of compound appreciation would all be taxed at sale, even though the heir never benefited from that growth. Congress wrote §1014 to avoid taxing unrealized lifetime gains a second time after the estate tax already addresses them.

Does the step-up apply if there's no estate tax due?

Yes. Whether or not an estate tax return (Form 706) is filed, the basis still steps up. The two systems were de-coupled long ago.

What about community property states?

In community property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI) the surviving spouse typically gets a double step-up: both halves of the property step up at the first spouse's death, not just the decedent's half.

Sources

Frequently asked questions

It applies to most property included in the decedent's gross estate. Property in a revocable trust steps up; certain irrevocable-trust property may not.

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Related guides

Capital Gains on Inherited Property

No Appraisal? Date-of-Death Valuation

This page is for general educational purposes only and is not tax advice. Tax outcomes depend on your specific facts and the year of the transaction. Always confirm with a licensed CPA or tax attorney before making decisions.