Understanding stepped-up basis is crucial for effective estate planning and tax strategy. Attorney Kellen Bryant explains this important tax concept and how it can save your family thousands in capital gains taxes.

Stepped-Up Basis Definition: What It Means

Stepped-up basis is a tax term that refers to the readjustment of an asset’s value for tax purposes when it’s inherited. This concept is essential for estate planning and long-term care planning in Florida and nationwide.

How Stepped-Up Basis Works: A Real Example

The best way to understand stepped-up basis is through a practical example:

The Purchase and Growth

Imagine your mother bought stock in 1990 for $10,000. Today, that same stock is worth $110,000. This creates a $100,000 capital gain ($110,000 current value minus $10,000 original purchase price).

If She Sells During Her Lifetime

If your mother sells the stock while she’s alive, she would owe capital gains tax on the entire $100,000 profit. This could result in significant tax liability.

The Stepped-Up Basis Advantage

However, if your mother passes away and you inherit the stock, something powerful happens: the stepped-up basis rule applies.

How Stepped-Up Basis Benefits Inheritance

When you inherit assets, their tax basis “steps up” to the fair market value on the date of death.

Inheritance Tax Advantages

Using our example:

• Original basis: $10,000 (what mom paid in 1990)
• Value at death: $110,000 (current market value)
• Your new stepped-up basis: $110,000
• Capital gains tax if you sell immediately: $0

Because your basis stepped up to $110,000 (the value at death), selling the stock for $110,000 results in zero taxable gain.

Why Timing Matters in Estate Planning

The stepped-up basis rule makes timing critical for tax-efficient estate planning:

Lifetime Sale vs. Inherited Asset

• If sold during lifetime: $100,000 taxable gain
• If inherited then sold: $0 taxable gain

This difference can save thousands or even tens of thousands in capital gains taxes.

Common Stepped-Up Basis Mistakes to Avoid

Many people unknowingly make costly errors that eliminate stepped-up basis benefits.

The Gift Transfer Problem

One major mistake involves gifting appreciated assets during your lifetime. When you gift stock or real estate, the recipient receives your original basis, not stepped-up basis.

Example of the problem:

• Gift during lifetime: Recipient gets $10,000 basis (transfer basis)
• Inheritance at death: Recipient gets $110,000 basis (stepped-up basis)

Assets That Benefit from Stepped-Up Basis

Stepped-up basis applies to many types of inherited property:

• Stocks and securities
• Real estate (including rental properties)
• Business interests
• Mutual funds
• Other capital assets with appreciation

Stepped-Up Basis and Estate Planning Strategies

Understanding stepped-up basis helps inform important estate planning decisions:

When to Hold vs. Gift Assets

For highly appreciated assets, it may be better to:

• Hold onto assets until death to provide stepped-up basis
• Gift assets with little or no appreciation
• Consider charitable strategies for appreciated assets
• Use trusts strategically to preserve stepped-up basis benefits

Stepped-Up Basis in Long-Term Care Planning

When protecting assets for long-term care in Florida, stepped-up basis considerations can affect:

• Which assets to spend down first
• Timing of asset transfers
• Trust planning strategies
• Medicaid planning decisions

Professional Guidance for Stepped-Up Basis Planning

The interaction between stepped-up basis rules and estate planning can be complex. Professional help ensures you:

• Maximize tax benefits for your beneficiaries
• Avoid costly gift transfer mistakes
• Structure your estate plan optimally
• Coordinate tax and estate planning strategies

Get Help with Estate and Tax Planning

Don’t let poor planning cost your family thousands in unnecessary taxes. Understanding stepped-up basis is just one piece of comprehensive estate planning.

Contact the Berg Bryant Elder Law Group in Jacksonville, Florida today to learn how proper estate planning can maximize stepped-up basis benefits and protect your family’s wealth for generations to come.