{
  "meta": {
    "title": "The 9-Step Estate Step-Up Basis Strategy",
    "titleHtml": "The 9-step <em>step-up basis</em> strategy.",
    "description": "Stepped-up basis at death wipes out the embedded capital gain on inherited assets. Nine planning steps — asset-location ordering, holding through death, JTWROS pitfalls — preserve the benefit.",
    "dek": "Stepped-up basis is the largest tax break in the IRC for transferring wealth. Most heirs leave significant value on the table.",
    "datePublished": "2026-03-31",
    "dateModified": "2026-03-31",
    "section": "Estate Planning",
    "readMinutes": 6,
    "wordCount": 800,
    "keywords": ["step up basis", "inherited assets", "estate planning", "Section 1014", "JTWROS", "TOD account", "community property step up", "long term capital gains"]
  },
  "problem": {
    "headline": "The largest tax break in the IRC, frequently misused.",
    "price": "20–37%",
    "priceLabel": "Tax saved on inherited gains via step-up",
    "body": "Section 1014 of the IRC steps the basis of inherited assets up to fair market value at the date of death. The embedded capital gain is wiped out. For long-tenure holdings with significant appreciation, the step-up can save 20 to 37 percent of the gain in federal tax alone. The strategy is to preserve the step-up by holding the right assets in the right ownership structures."
  },
  "indicatorsHeading": {
    "title": "The nine planning",
    "em": "moves around step-up.",
    "sublede": "Each is a deliberate ownership or asset-location decision made before death. Together they preserve the step-up that retail commonly forfeits."
  },
  "indicators": [
    {"title": "Hold appreciated assets through death rather than sell", "metric": "Pattern: never realize", "detail": "Selling appreciated assets during life realizes the gain. Holding through death wipes it out via step-up."},
    {"title": "Avoid JTWROS for high-appreciation assets", "metric": "Pattern: only half steps up", "detail": "Joint tenancy with rights of survivorship steps up only the deceased's half. Sole ownership or community property steps up the full asset."},
    {"title": "Use TOD/POD designations for clean transfer", "metric": "Pattern: probate avoidance", "detail": "Transfer-on-death registrations avoid probate while preserving step-up. Brokerage-level TOD is operationally simple."},
    {"title": "Community-property states get full step-up on shared assets", "metric": "Threshold: married, CP state", "detail": "In community-property states (CA, TX, AZ, NM, NV, ID, LA, WI, WA), shared appreciated assets get full step-up at first spouse's death — not just half."},
    {"title": "Keep tax-deferred assets in IRAs, taxable in brokerage", "metric": "Asset location: appreciation outside IRA", "detail": "IRA assets get NO step-up. Appreciated equities should live in taxable accounts where the step-up applies."},
    {"title": "Avoid large lifetime gifts of appreciated assets", "metric": "Pattern: gifts carry basis", "detail": "Lifetime gifts transfer at the donor's basis. Recipients sell with the embedded gain. Death transfers via step-up; gifting does not."},
    {"title": "Roth IRAs get no step-up either, but no tax", "metric": "Pattern: tax-free regardless", "detail": "Roth IRAs have no step-up at death because they have no embedded tax. The 10-year inherited-Roth rule still applies."},
    {"title": "Document fair market value at death", "metric": "Method: 706 appraisal", "detail": "FMV at death establishes the new basis. For non-publicly-traded assets, qualified appraisals are required to support the basis."},
    {"title": "Consider alternate valuation date election", "metric": "Threshold: 6 months later", "detail": "Estates can elect alternate valuation date 6 months post-death if it lowers estate tax. Affects both estate tax and beneficiary basis."}
  ],
  "body": [
    {
      "h2": "What the step-up does",
      "paragraphs": [
        "When a U.S. taxpayer dies, the basis of capital assets in their estate is generally adjusted to fair market value as of the date of death (or 6 months later, if the alternate valuation date election is made). The embedded capital gain at death is wiped out — the heir takes the asset with a new basis equal to FMV.",
        "The implications are large. A holder who bought $10,000 of stock 30 years ago, watched it grow to $200,000, and held it until death passes that stock to heirs with a $200,000 basis. The $190,000 of appreciation is never taxed. The same holder who sold the stock during life owes capital-gains tax on the gain. The decision to hold versus sell appreciated assets, particularly late in life, is structurally biased toward holding because of step-up."
      ]
    },
    {
      "h2": "Joint tenancy is the most common step-up trap",
      "paragraphs": [
        "Joint tenancy with rights of survivorship is the most common ownership structure for married couples in non-community-property states. JTWROS provides probate avoidance, but it produces only a partial step-up at the first death — only half of the asset's basis is adjusted. The other half retains its original basis.",
        "For couples in community-property states, equivalent shared property gets a full step-up at the first death. The community-property structure is dramatically more favorable for high-appreciation assets. Many states (Alaska, Tennessee, others) offer opt-in community-property arrangements that capture the full step-up benefit even outside historically community-property states."
      ]
    },
    {
      "h2": "Asset-location implications",
      "paragraphs": [
        "Assets inside traditional IRAs, 401(k)s, and similar tax-deferred accounts do not receive a step-up at death. The pre-tax balance is taxed as ordinary income to the heir under the 10-year payout rule (post-SECURE Act). Assets inside Roth IRAs do not receive a step-up either, but they have no embedded tax.",
        "The asset-location implication is that highly-appreciated equities should be held in taxable brokerage accounts where the step-up applies. Tax-inefficient assets (REITs, high-turnover funds, taxable bonds) should be held in tax-deferred accounts. The full optimization is more complex, but the step-up rule reinforces the standard asset-location guidance."
      ]
    },
    {
      "h2": "What the step-up does not protect",
      "paragraphs": [
        "Income in respect of a decedent (IRD) — most importantly traditional IRA balances — is not stepped up. The heir pays ordinary income tax on the inherited IRA balance during the 10-year payout window.",
        "Step-up also does not eliminate the federal estate tax on estates above the exemption ($13.61 million per individual in 2024, scheduled to revert to approximately $7 million in 2026 absent extension). Estate tax planning at high net worth requires separate strategies — credit-shelter trusts, GRATs, charitable remainder trusts — that are beyond the simple step-up planning here."
      ]
    }
  ],
  "faqs": [
    {"q": "Does step-up apply to all inherited assets?", "a": "Most capital assets — stocks, real estate, collectibles. Exceptions include traditional IRAs, 401(k)s, annuities, and other IRD assets."},
    {"q": "What about gifted assets?", "a": "Gifts during life carry the donor's basis. The recipient owes tax on the embedded gain when they sell. Death transfers preserve step-up; lifetime gifts do not."},
    {"q": "Will Congress repeal the step-up?", "a": "Periodically proposed (Build Back Better, 2021). No major reform has passed. Current law is stable but not guaranteed."},
    {"q": "How does the basis get reported?", "a": "Brokerages step up the basis automatically on death-of-account-holder events. For private assets, qualified appraisals support the new basis."},
    {"q": "Is step-up available for jointly-held real estate?", "a": "Yes, with the same JTWROS half-step-up issue. Tenants-in-common ownership separates the step-up by ownership share."},
    {"q": "What about life insurance proceeds?", "a": "Life insurance death benefits are received income-tax-free under different rules (Section 101). Step-up is not the relevant mechanism."}
  ]
}