Capital Gains / Step Up Basis
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      1. Royal Knowledge
      2. Tax
      3. Capital Gains / Step Up Basis

      What is the Step Up Basis?

      • Stepped-up basis is a provision in tax law that applies to the taxation of capital gains at death. Assets are transferred at the fair market value.
      • Example: A brother and sister purchase real estate (the “Property”) as joint tenants in 2000 for $1,000,000.  The brother paid $750,000 (75%) of the purchase price and the sister paid the remaining $250,000 (25%). In 2023, the brother died when the Property had a FMV of $2,000,000. Therefore, $1,500,000 is the FMV for the brother’s interest at his death (75% of $2,000,000). Now the sister, as the surviving joint tenant, will own the entire Property by operation of law.  Her adjusted cost basis in the Property will consist of her original basis in the Property, plus the FMV of Brother’s interest at his death (the “step-up”).  (See calculation below)
        • $1,500,000 (The step-up in basis for the brother’s interest)
        •  +$250,000  (The sister’s original basis)
        • $1,750,000 (The sister’s adjusted basis). The depreciation for the inherited half would be stepped up to the FMV.