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Concept · Tax in investing

What is the step-up in basis at death?

Direct answer When an investor dies, the cost basis of the assets they held resets to their market value on that date (IRC §1014). The gain built up during their life is never taxed. It is the reason a low-basis winner is often best held rather than sold, and the largest tax lever a taxable investor has.

California follows the federal rule. With a 2026 estate exemption of $15 million per person, estate tax does not enter for most households, so the step-up is a pure erasure of the capital-gains bill.

It also changes what loss harvesting is worth: a harvested loss is a deferral, and the step-up is one of two exits (the other is a charitable gift) that turn the deferral into permanent forgiveness. Read the lever worth the most is never selling.

Sources

  1. IRC §1014, basis of property acquired from a decedentlaw.cornell.edu
  2. IRS Rev. Proc. 2025-32, the 2026 estate exclusion of $15,000,000irs.gov

Used in

Eight tax levers, ranked by what they are worth Never selling is worth the whole 35 cents, the one-year line 17, an ETF about 120 basis points a year. Loss harvesting, the lever with the marketing budget, 0 to 30 after year five. Each one, priced. The lever worth the most is never selling A $100,000 position with a $40,000 gain costs $14,040 of tax to sell. Held to the estate it costs nothing; given to charity it earns a deduction. The quiet lever at the top of the ranking.

Related concepts

Cost basisDonor-advised fundTax-loss harvesting

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