do stocks get a step up in basis at death

This article explains whether do stocks get a step up in basis at death — the U.S. tax rule that generally adjusts the cost basis of inherited publicly traded stock to fair market value at the dece...

2026-01-17 02:11:00

By Meta Cipher

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Do stocks get a step up in basis at death?

do stocks get a step up in basis at death is a common question for heirs, executors, and anyone planning an estate. In short: yes — in most cases U.S. federal tax law adjusts ("steps up" or "steps down") the cost basis of stocks included in a decedent’s estate to the fair market value (FMV) at the date of death (or an alternate valuation date if elected). This guide explains how that step‑up works for publicly traded securities, important exceptions (retirement accounts, certain trusts, gifts), reporting requirements, and practical steps beneficiaries and executors should take.

截至 2026-01-22，据 IRS 与 Fidelity 报道，本篇文章基于现行美国联邦税法与税务指南整理，旨在提供中立、可验证的信息。请在具体情形下咨询合格的税务或法律专业人士。

Definition and legal authority

"Step‑up (or step‑down) in basis" means adjusting the cost basis of property for tax purposes to the property's FMV at a triggering event — most commonly the owner's death. The primary federal legal authority for the step‑up rule in the United States is Internal Revenue Code §1014, which provides that the basis of property acquired from a decedent is generally the property's FMV at the date of death (with an alternate valuation rule available in certain estates). The IRS provides implementation guidance in publications and forms including Publication 551 (Basis of Assets), Form 706 instructions (estate tax), and related guidance.

Key point: do stocks get a step up in basis at death? Under IRC §1014, generally yes for stocks that are included in the decedent’s gross estate.

How the step‑up works for publicly traded stocks

Mechanics for publicly traded stocks are relatively straightforward compared with unique, illiquid assets:

Basis after death: The inheritor's cost basis in the inherited stocks is typically set to the FMV at the decedent’s date of death (or the alternate valuation date, if elected and allowed).
Determining FMV for listed securities: For exchange‑traded securities, FMV is commonly determined using quoted market prices on the valuation date. Practically, many brokerages use the closing price, or the midpoint between the bid and ask at a specific time that day, to document the FMV. For thinly traded stocks, a broker/dealer or the estate may rely on contemporaneous trade prices or valuation support.
Holding period: Inherited securities generally receive a long‑term holding period for capital gains purposes regardless of how long the decedent held them. That means when a beneficiary sells inherited stock, the sale is treated as long‑term capital gain or loss.

do stocks get a step up in basis at death? For publicly traded stocks included in the estate, the practical effect is that beneficiaries often receive an adjusted basis equal to the FMV on the valuation date, reducing or eliminating capital gains that accrued during the decedent’s lifetime.

Alternate valuation date (six‑month rule)

Executors can elect an alternate valuation date under IRC rules if the estate files Form 706 (estate tax return) and the election satisfies the requirements. Key points:

The alternate valuation date is six months after the date of death.
The election can be made only if it decreases both the gross estate value and the estate tax liability. It cannot be used merely to reduce income tax for beneficiaries.
If the alternate valuation date is elected, assets sold or distributed before that six‑month date are valued at the date of sale or distribution, not at the alternate date.

Effect on basis: If the alternate valuation date is used for estate tax purposes and the inherited stock is included in the estate valuation, the beneficiary’s basis will usually reflect the elected alternate valuation FMV. That can create a step‑down in basis if market prices fall in the six months after death.

Tax consequences when beneficiaries sell inherited stocks

Capital gains calculation: Capital gain or loss equals sale proceeds minus the stepped‑up (or stepped‑down) basis. Because the holding period is treated as long‑term, long‑term capital gain rates apply.
Immediate sale at FMV: If a beneficiary sells the inherited stock soon after inheriting it at or near the FMV used as basis, there is typically little or no capital gain or loss.
Basis greater than sales price: If the FMV at death exceeded the sales price (a step‑down), the beneficiary may recognize a loss; that loss is treated as long‑term.

Example (quick):

Decedent bought 100 shares years ago for $10/share (original basis $1,000). At date of death, FMV is $50/share. The beneficiary’s stepped‑up basis is $5,000. If beneficiary sells at $50/share immediately, capital gain = $5,000 − $5,000 = $0.

do stocks get a step up in basis at death? Yes — the example shows how a step‑up can eliminate capital gains tax on appreciated stock when sold immediately.

Common exceptions and special cases

Several important exceptions mean that not all asset transfers receive a step‑up in basis:

Gifts during life: When property is transferred as a gift during the donor's lifetime, the recipient generally receives a carryover basis (the donor’s original basis), not a step‑up. The carryover basis can result in larger capital gains when the donee later sells. The exception is the annual gift exclusion and certain low‑basis small gifts; but broadly gifts are carryover basis.
Retirement accounts (IRAs, 401(k)s): Assets inside qualified retirement plans (IRAs, 401(k)s) do not receive a step‑up. Retirement account balances are taxed as ordinary income when withdrawn by beneficiaries (subject to required minimum distribution and plan rules). These balances are considered Income in Respect of a Decedent (IRD) and keep their character as taxable income on distribution rather than benefiting from §1014 step‑up.
Transfer‑outside‑estate arrangements: Assets that bypass the probate estate (for example, certain payable‑on‑death or transfer‑on‑death arrangements, assets in some irrevocable trusts, or other non‑probate transfers) may or may not be included in the gross estate for tax purposes. If excluded from the decedent’s estate for estate tax purposes, they may not receive a step‑up.
Trusts: The treatment depends on whether the trust is revocable or irrevocable and whether the asset is includible in the decedent’s gross estate. Assets in a revocable living trust are typically included in the estate and receive the step‑up. Irrevocable trusts can vary — if the trust assets are includible in the estate, a step‑up may occur; if they are not, they do not.
Closely‑held businesses and illiquid positions: For non‑public or thinly traded assets, professional valuations are often required to establish FMV. The step‑up applies, but the valuation process is more complex and can invite IRS scrutiny.

do stocks get a step up in basis at death? Remember these exceptions — retirement accounts and many lifetime gifts are the most common situations where a step‑up does not apply.

Joint ownership and marital considerations

Ownership form matters:

Joint tenants with rights of survivorship (JTWROS): When property is jointly owned, the portion attributable to the deceased owner typically receives a step‑up. The surviving joint owner’s original basis in their own share remains unchanged. The exact step‑up depends on whether the joint tenancy is considered a true half/half ownership or reflects contributions that can be documented.
Community property states: In many community property jurisdictions, when one spouse dies owning community property, the entire property can receive a step‑up to FMV (a "double" step‑up) so that both the deceased and surviving spouse’s halves are adjusted to FMV. This results in a larger step‑up benefit than in common‑law states, where typically only the decedent’s share steps up.
Tenancy in common: Only the decedent’s share receives a step‑up.

do stocks get a step up in basis at death? Ownership form can materially affect how much basis is stepped up on death.

Transfer‑on‑death (TOD)/payable‑on‑death (POD) and transfer agent procedures

Many publicly traded accounts support TOD or beneficiary designations that transfer assets directly to named beneficiaries without probate. Practical considerations:

Documentation: Beneficiaries typically must provide a certified death certificate and beneficiary identification. Brokerages often require letters testamentary or small estate affidavits depending on account size and state rules.
Broker basis reporting: After transfer, brokerages will report the cost basis for the inherited position on Form 1099‑B when sold. Brokers may use their own valuation or rely on estate documentation; beneficiaries should confirm the basis the broker reports and retain any estate valuation documentation.
Timing: Brokers may hold assets until required documents are provided. Beneficiaries should request an FMV statement from the broker for the date of death valuation.

Net unrealized appreciation (NUA) and employer stock in retirement plans

A special rule applies for employer securities distributed from qualified retirement plans (e.g., employer stock distribution from a 401(k)). Net Unrealized Appreciation (NUA) rules allow favorable tax treatment where the cost basis in the employer stock within the plan (the plan basis) is taxed as ordinary income on distribution, but the appreciation (the NUA) can be taxed at long‑term capital gains rates when the stock is later sold. NUA treatment is complex, has strict requirements, and does not mean the typical §1014 step‑up applies. NUA rules are distinct from step‑up rules for inherited brokerage securities.

do stocks get a step up in basis at death? For employer securities inside retirement plans, step‑up rules generally do not apply — instead, NUA and retirement distribution rules govern taxation.

Reporting and forms

When beneficiaries sell inherited stock, reporting obligations commonly include:

Form 8949 and Schedule D (U.S. individual income tax return): Report sales of capital assets. On Form 8949 you indicate whether the asset was "inherited" and enter acquisition date as "Date acquired: inherited" or similar per instructions, and use the stepped‑up basis.
Form 1099‑B: Brokers issue Form 1099‑B reporting proceeds from sales; sometimes brokers report basis as "unknown" or with the estate‑provided basis. Ultimately, your tax reporting must reflect the correct (stepped) basis.
Form 706 (Estate Tax Return): Required only when the gross estate exceeds the estate tax filing threshold for the year. If Form 706 is filed, estate valuations on that form inform basis documentation for beneficiaries.

Practical tip: Keep correspondence and valuation documentation from the executor or broker; it will simplify matching Form 1099‑B entries to the correct basis on Form 8949.

Documentation and establishing basis

Beneficiaries and executors should preserve and collect documentation to establish basis:

Estate documentation: Executor statements, inventories, and valuations attached to Form 706 when filed.
Broker statements: Brokers usually provide an account statement showing FMV on the date of death or an internal valuation memo.
Appraisals: For non‑marketable assets or illiquid securities, obtain qualified appraisals.
Death certificate and letters testamentary: These are necessary to transfer accounts and for many broker procedures.

If the broker reports a basis different from the estate's valuation, beneficiaries can submit the estate documentation to the broker and, if necessary, report the correct basis on the tax return; keep records to support the position in case of IRS inquiry.

do stocks get a step up in basis at death? Clear documentation is the single best defense to tax adjustments later.

Planning considerations and common pitfalls

Estate planning affects step‑up outcomes. Some considerations:

Gift vs bequest tradeoff: Gifting appreciated stocks during life transfers the donor’s basis (carryover basis) to the donee; a bequest at death typically receives step‑up. Donors who give low‑basis assets may expose donees to large capital gains. Conversely, gifts may reduce estate size for estate tax planning.
Retirement accounts: Because IRAs and 401(k)s do not receive a step‑up, consider income tax implications for beneficiaries when planning distributions and beneficiary designations.
Joint accounts: Misunderstanding joint account rules is common. Donors who place assets in joint accounts to avoid probate may unintentionally complicate basis and expose more of the asset to the estate.
Neglecting documentation: Failing to gather broker FMV statements or Form 706 schedules can make it difficult to substantiate the stepped basis.

Common mistakes:

Assuming all assets receive step‑up treatment (retirement accounts do not).
Failing to update beneficiary designations.
Not checking broker‑reported basis before filing tax returns.

do stocks get a step up in basis at death? Thoughtful planning and up‑to‑date beneficiary designations help realize the potential step‑up benefits while avoiding common errors.

Examples and worked calculations

Step‑up eliminating appreciation

Decedent original basis: $2,000 (100 shares at $20).
FMV at death: $8,000 (100 shares at $80).
Beneficiary stepped‑up basis: $8,000.
Immediate sale at $80/share: Sale proceeds $8,000 — capital gain $0.

Step‑down producing smaller basis and taxable gain

Decedent original basis: $8,000 (100 shares at $80).
FMV at death: $3,000 (100 shares at $30).
Beneficiary stepped‑down basis: $3,000.
Sale at $50/share later: Sale proceeds $5,000 — capital gain $2,000 (long‑term).

Joint ownership/community property illustration

In a common‑law state, decedent owned half of 100 shares (50 shares), FMV per share $100 at death. The decedent’s half (50 shares) steps up to $5,000; the surviving owner’s original basis in their half remains unchanged.
In a community property state, the entire 100 shares might step up to FMV, creating a larger basis adjustment.

These examples show practical outcomes depending on FMV, basis, and state rules.

Policy debate and recent/proposed changes

The step‑up rule has been a subject of policy debate. Proponents argue the rule prevents double taxation, simplifies administration for heirs, and avoids taxing economic gains that are unrealized at death. Critics contend it provides a large tax benefit to heirs of appreciated assets, reduces capital gains tax revenue, and primarily benefits wealthier households.

Legislative proposals to limit or eliminate the step‑up occasionally appear in policy discussions and tax reform proposals. As of the dated reporting above, no permanent federal repeal had been enacted. Because tax law proposals can change, consult a tax professional for current status.

do stocks get a step up in basis at death? The policy debate continues, but current law remains IRC §1014 unless Congress acts otherwise.

International considerations

The step‑up treatment described here is specific to U.S. federal tax law. Other countries have different inheritance, estate, and capital gains rules — some apply step‑up, others use carryover basis, and some treat the event as a deemed disposition. Non‑U.S. residents or those holding securities in other jurisdictions should consult local tax rules.

Practical checklist for beneficiaries and executors

Locate account records and identify all brokerage and custodial accounts.
Obtain multiple certified copies of the death certificate.
Secure letters testamentary or letters of administration from the probate court if required.
Provide brokerages/transfer agents with required documents and request an FMV statement for the date of death.
Collect estate valuation documents and any appraisals; if Form 706 is required, ensure valuations are consistent.
Decide whether to sell, hold, or transfer stocks — factor tax, investment, and liquidity needs (consult advisors).
When selling, check Form 1099‑B and confirm the basis reported by the broker; be prepared to report the stepped‑up basis on Form 8949 / Schedule D.
Consider consulting a qualified tax advisor for complex situations (nonpublic holdings, trust issues, large estates).

do stocks get a step up in basis at death? Following this checklist will help beneficiaries and executors preserve the tax benefits and avoid reporting mistakes.

Notes and caveats

This article summarizes general U.S. federal tax rules as of the date noted earlier and is intended for informational purposes only. State tax rules, account specifics, and individual circumstances can alter outcomes. This content does not constitute legal or tax advice. For personalized guidance, consult a tax professional, estate attorney, or financial advisor.

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进一步探索: if you’re an executor or beneficiary managing inherited securities, gather the necessary documents now, confirm broker valuations, and consult a tax advisor to ensure accurate reporting and to preserve any step‑up benefits.

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