Tax
Income-Tax Basis at Death
Simple explanation
Property acquired from a decedent often receives a basis tied to fair market value at the applicable valuation date under federal law, but exceptions, entity rules, community property, and estate-inclusion questions matter.
- Basis can step down as well as up
- A higher basis can reduce later gain; a lower value can also step basis down.
- Lifetime gifts usually carry the donor's basis
- Lifetime gifted property often carries the donor's basis instead.
- Income in respect of a decedent is different
- Income in respect of a decedent follows separate rules.
- Valuation records matter as much as the return
- Basis records and qualified valuations can be as important as transfer-tax calculations.
The four parts of a working plan
- People Identify the owner, decision-makers, fiduciaries, and beneficiaries.
- Property Map title, contract rights, debts, tax attributes, and practical access.
- Documents Coordinate wills, trusts, powers, directives, and beneficiary forms.
- Review Revisit the plan after life, ownership, law, tax, or relationship changes.
Go deeper
Basis decides how much taxable gain an heir has when inherited property is sold. This guide explains the date-of-death rule, where it does not apply and why records matter.
Who typically explores it
Heirs selling an inherited home or stock portfolio, surviving spouses in community-property states, and people deciding whether to give an asset now or leave it at death.
Tax lens
Under IRC § 1014, property acquired from a decedent generally takes a basis equal to fair market value at death, or at the alternate valuation date if that is elected, which can erase or create gain. Gifted property usually keeps the donor's basis under § 1015, pre-tax retirement accounts get no adjustment, and both halves of community property can be adjusted under § 1014(b)(6).
Common mistakes
Calling every change a step-up
No date-of-death valuation
Assuming trust ownership alone determines basis
Questions about Income-Tax Basis at Death
Does state law matter?
Usually. Document execution, probate, spousal rights, creditor rules, trust administration, and state tax treatment can vary by jurisdiction.
What should be verified before acting?
Verify the current governing instrument, title and beneficiary records, applicable state law, current tax year, primary authority, and advice from appropriately qualified professionals.
Sources
- Internal Revenue Code, estate and gift tax subtitleU.S. House Office of the Law Revision Counsel · United States—federal
- IRS Publication 555: Community PropertyInternal Revenue Service · United States—federal tax treatment
Sources support general educational claims as of the review date. Official materials can change, and source links do not replace fact-specific professional analysis. Not legal, tax, investment, or accounting advice.