step-up in basisn.
Reviewed by Owen Hathaway, AttorneyUpdated June 5, 2026The income-tax rule that resets an inherited asset's cost basis to its value at the owner's death, often erasing the capital-gains tax on the prior appreciation.
Step-up in basis is the federal income-tax rule that adjusts the cost basis of most assets to their fair market value as of the owner's date of death. When heirs later sell, capital gain is measured from that stepped-up value, not the decedent's original cost, so a lifetime of appreciation can pass without capital-gains tax.
The rule shapes planning decisions: holding appreciated assets until death can be more tax-efficient than gifting them during life, which carries over the original basis. It applies to inherited assets generally, with exceptions such as retirement accounts.
Step-up in basis is governed by federal tax law (26 U.S.C. § 1014) and applies the same way in Colorado and Wyoming. Community-property rules can produce a fuller step-up, but neither Colorado nor Wyoming is a community-property state.
Related terms
- beneficiary designationAn instruction on an account or policy naming who receives it at death. It passes outside probate and overrides what a will says.
- irrevocable trustA trust that generally cannot be changed or revoked after it's created. Giving up control is the price for benefits like asset protection and tax planning.