Do Stocks Get Stepped Up Basis? Explained

Do stocks get stepped up basis?

As a concise answer up front: do stocks get stepped up basis? Yes — inherited stocks (and most other non‑retirement property) generally receive a "step‑up" (or step‑down) in cost basis to fair market value (FMV) at the decedent’s date of death under U.S. federal tax law. This adjustment, governed by Internal Revenue Code §1014, determines the capital gain or loss when an heir later sells the security and can dramatically reduce taxable gains on assets that appreciated during the decedent’s lifetime.

As of June 2024, according to Cornell Law School (Wex) and IRS guidance, the step‑up rule continues to apply broadly to publicly traded stocks, privately held shares, ETFs and similar non‑retirement investments when those assets are included in the decedent’s estate and transferred by bequest or intestacy.

This guide explains what a step‑up in basis means, how it applies to publicly traded stocks, important valuation and reporting rules, exceptions (notably retirement accounts), community property quirks, issues with gifts and trusts, crypto and digital assets, and practical steps heirs should take after a death. Throughout you'll see clear examples and a short checklist of next actions, plus references to official sources and brokerage documentation practices. If you use Bitget services, consider Bitget Wallet for custody needs and Bitget for trading liquidity after you settle basis and title issues.

Definition — “step‑up in basis”

Basis: In tax terms, an asset’s "basis" (or cost basis) is the starting value used to compute gain or loss on a sale. For purchased stocks, basis is usually the purchase price plus costs such as commissions.

Step‑up rule (IRC §1014): When a taxpayer dies, the tax code generally resets the basis of property included in the decedent’s estate to the property’s fair market value at the date of death. This "step‑up" (or if FMV is lower, a "step‑down") replaces the decedent’s original basis with the FMV for the beneficiary. The result: an heir who immediately sells the asset typically recognizes little or no capital gain attributable to pre‑death appreciation.

Why it matters: Capital gains tax is calculated based on the difference between sales proceeds and basis. A step‑up can eliminate decades of unrealized appreciation from taxable gain when the heir sells, materially reducing tax liability for appreciated assets.

Key legal citation: Internal Revenue Code §1014.

How the step‑up applies to publicly traded stocks

Publicly traded stocks inherited from a decedent normally receive a basis equal to the FMV on the decedent’s date of death (or the alternate valuation date discussed below if the estate elects it). Beneficiaries also inherit a long‑term holding period for determining long‑term vs short‑term capital gain status, regardless of how long the decedent held the shares.

Practical result: If a decedent bought stock for $10,000 and on the date of death the FMV is $100,000, the heir’s basis will be $100,000. If the heir sells the shares for $102,000 shortly after inheriting them, the taxable gain is $2,000 rather than $92,000.

Example (simple): Decedent’s original purchase price (adjusted basis): $10,000. FMV at death: $100,000. Heir sells immediately for $100,000 — taxable gain = $0. If heir sells later for $120,000 — taxable gain = $20,000 (long‑term).

This makes "do stocks get stepped up basis" a practical question with a clear yes for most publicly traded securities, subject to documentation and the asset being included in the estate.

Valuation of publicly traded shares

For exchange‑traded securities, valuation is usually straightforward but follows market conventions:

• The single closing price on the date of death is commonly used. Brokerage statements or exchange conventions (e.g., NASDAQ/NYSE official close) provide documentation.
• If the security is thinly traded or the transfer occurs outside normal exchange hours, the FMV may be the mean of high and low or another defensible valuation method.
• If the estate timely elects the alternate valuation date on Form 706 (six months after death), FMV as of that alternate date may be used — but the election applies to the entire estate and only when it lowers both estate tax and the value of estate assets.

Broker reporting: Most brokerages provide a cost basis for inherited positions and should include FMV as of date of death on account statements. Retain those statements — they are essential when the beneficiary reports a future sale on Form 8949 and Schedule D.

Which assets do and do not receive a step‑up

Assets that generally receive a step‑up in basis:

• Individual brokerage accounts holding publicly traded stocks, ETFs, mutual funds and bonds included in the estate.
• Many assets held in revocable living trusts that are treated as part of the decedent’s estate at death.
• Most closely held businesses and privately held shares, subject to valuation.
• Real property and tangible personal property included in the estate.

Common exceptions and non‑step‑up assets:

• Tax‑deferred retirement accounts (traditional IRAs, 401(k)s) — these do not get a step‑up. Beneficiary distributions are taxed as ordinary income when distributed (Roth IRAs are treated differently if distributions are qualified).
• Gifts made during the donor’s lifetime — gift recipients generally take the donor’s basis (carryover basis), not a stepped‑up basis.
• Assets transferred to certain types of trusts or ownership forms that do not include the asset in the decedent’s gross estate for federal estate tax purposes may not receive a step‑up.

Remember: whether an asset receives a step‑up depends on inclusion in the decedent’s gross estate and the factual and legal manner of transfer.

Community property and surviving spouses

In community property states, community property often receives a "double step‑up" in basis on the first spouse’s death. That means the entire community property receives a basis adjustment to FMV at the first spouse’s death, not just the deceased spouse’s half.

Example: In a community property state, a married couple bought securities for $20,000 when married. On Spouse A’s death the FMV of the community property is $200,000. The surviving spouse’s basis in the entire holding becomes $200,000 (a double step‑up), not $110,000 or similar, effectively eliminating pre‑death appreciation for the surviving spouse.

Contrast with common law states where an individual Owner’s portion generally receives a step‑up, and joint ownership rules or right of survivorship may complicate treatment.

Retirement accounts and tax treatment for beneficiaries

Do stocks get stepped up basis inside retirement accounts? No — tax‑deferred retirement accounts (traditional IRAs, 401(k)s) do not receive a step‑up in basis when the account owner dies because the account itself is taxed on distributions as income, not as capital gains. The beneficiary takes distributions subject to ordinary income tax rules, required minimum distribution rules, and the post‑SECURE Act distribution windows.

Special case — Roth IRAs: Qualified Roth IRA distributions are generally tax‑free to beneficiaries; however, the Roth’s inside value is not "stepped up" for capital gains purposes because basis rules for retirement accounts differ from property rules.

Implication: When thinking about whether to keep assets in a taxable brokerage account versus a retirement account, be aware the step‑up benefit exists only for non‑retirement property included in the estate.

Transfers, gifts, and trust issues

Gifts during life: If the owner gifts stock during life, the donee generally takes the donor’s carryover basis (the donor’s adjusted basis at the time of the gift), not a stepped‑up basis. If the donor dies soon after making gifts, special rules can apply for basis in certain situations (e.g., gift basis for tax loss calculations), but the general rule is carryover basis for gifts.

Transfer on Death (TOD) and beneficiary designations: Securities with a TOD or Transfer on Death designation typically transfer to the named beneficiary at death and are treated as inherited property; beneficiaries will generally receive a step‑up in basis if the asset is included in the estate and property is treated as transferred at death.

Revocable vs irrevocable trusts: Assets in a revocable living trust are typically part of the decedent’s estate and receive a step‑up if included in the gross estate. Irrevocable trusts may not include the asset in the decedent’s estate for basis purposes depending on terms and control — consult a professional to confirm.

Pre‑death transfers designed to avoid estate inclusion can affect step‑up eligibility and may have other tax consequences. Always coordinate transfers with legal and tax advisors.

Special situations and complexities

Closely held/private company stock: Valuing privately held shares for step‑up purposes requires careful, defensible valuation (appraisals, valuation reports). The IRS and courts scrutinize these valuations, particularly for large estates.

Restricted stock, RSUs, and stock options: Restricted stock granted to a decedent but not vested at death, or unexercised options, can raise complex questions about inclusion and valuation. RSUs that convert to shares before death are typical property; restricted shares might be included depending on vesting and forfeiture rules.

Fractional or partial interests: Fractional interests and minority discounts may apply in private business valuations — these affect step‑up calculations and estate tax valuations.

Step‑down: A step‑down occurs when FMV at death is lower than the decedent’s adjusted basis. In that case the heir inherits the lower FMV basis and may realize a capital loss on a quick sale. The tax code’s step‑up rule covers both directions: basis becomes FMV at death, whether higher or lower than the decedent’s basis.

Decedent sold or transferred before death: If the decedent sold the asset before death, the sale determines realized gain/loss for the decedent. Only property still owned by the decedent at death is eligible for basis adjustment.

Reporting, documentation, and tax forms

When an heir sells inherited stock, they must report the sale on their individual tax return. Practical reporting steps:

• Obtain broker statements that show FMV at date of death and the heir’s new cost basis. Many brokerages issue an "inherited cost basis" or display the FMV in the account.
• Use Form 8949 to report each sale of capital assets and Schedule D (Form 1040) to summarize capital gains and losses. On Form 8949, indicate that the basis is the value at date of death and the holding period is long‑term.
• If the estate files Form 706 (United States Estate (and Generation‑Skipping Transfer) Tax Return) because the gross estate exceeds the filing threshold, valuations and elections (including alternate valuation date) are reported there.

Keep records: Preserve statements showing date‑of‑death valuations, appraisals for private assets, securities transfer documentation, trust instruments, and any Form 706 or estate tax filings.

If the beneficiary sells within the same tax year or shortly after, ensure the broker’s cost basis reporting to the IRS (on Form 1099‑B) aligns with your return. If there is a discrepancy, attach a statement explaining the basis and include supporting documentation.

Estate planning considerations and taxpayer strategies

Common planning choices and tradeoffs:

• Bequeath vs gift: Leaving appreciated assets to heirs at death allows step‑up treatment; gifting during life gives the donee carryover basis. Gifting can be strategic for lifetime use of the asset or to reduce estate size, but it sacrifices the step‑up.
• Use of trusts: Grantor trusts, revocable trusts and certain irrevocable trusts have different effects on estate inclusion and step‑up eligibility. Some trusts preserve step‑up, others do not.
• Harvesting gains/losses pre‑death: Realizing gains before death removes appreciation from the potential step‑up pool. Realizing losses before death can create losses to offset gains, but these are personal tax decisions with tradeoffs.
• Retitling or joint ownership: Transferring assets to joint ownership may alter step‑up treatment. In community property states, joint ownership with right of survivorship may produce double step‑up benefits; in common law states results vary.

Pros/cons: The step‑up offers powerful tax relief for heirs but can create perverse incentives to retain appreciated investments in taxable accounts. Trustees and executors should balance income needs, estate tax planning, and tax efficiency. Always involve estate counsel and tax professionals when structuring large asset transfers.

Digital assets (cryptocurrency, NFTs) and step‑up treatment

General rule: Digital assets like cryptocurrency and NFTs are treated as property by the IRS and, if included in the decedent’s estate at death, generally receive a step‑up (or step‑down) in basis to FMV at the date of death.

Valuation and documentation challenges:

• Volatility and timing: Crypto prices can change rapidly; documenting the FMV at a precise date and time is critical. Use exchange trade data or on‑chain price references, and keep records of the chosen price source.
• Custody: Assets held in personal wallets, cold storage or third‑party custodial services may be harder to prove ownership and value. Bitget Wallet can provide custody and transaction history for users who stored assets there; preserving private key control and transaction logs is essential.
• Illiquid or unique NFTs: For NFTs lacking frequent market sales, obtain expert appraisals or use the most recent arm’s‑length sale evidence to support FMV.

Regulatory caution: IRS guidance around crypto continues to evolve. The general property and estate principles apply, but documentation and defensible valuation are essential.

Examples and illustrative calculations

Below are short scenario examples illustrating step‑up, step‑down, and community property double step‑up.

Example A — Step‑up eliminating pre‑death gain:

• Decedent’s adjusted basis: $25,000
• FMV at date of death: $150,000
• Heir sells immediately for $150,000
• Recognized capital gain: $0 (basis stepped up to $150,000)

Example B — Step‑down when FMV is lower at death:

• Decedent’s adjusted basis: $200,000
• FMV at date of death: $120,000
• Heir sells for $120,000 shortly after inheriting
• Recognized capital loss: $80,000 (subject to capital loss rules and limitations)

Example C — Community property double step‑up:

• Couple purchased stock for $50,000 (community property)
• FMV when Spouse A dies: $500,000
• Surviving spouse’s basis in the entire holding becomes $500,000 (double step‑up)
• If surviving spouse sells for $500,000, recognized gain = $0

These examples demonstrate why heirs and estate planners often ask: do stocks get stepped up basis? In most inherited, non‑retirement cases, the answer is yes.

Policy context, criticisms, and legislative proposals

The step‑up in basis is a significant tax provision that reduces capital gains taxes for heirs. Critics argue it primarily benefits wealthier estates by allowing substantial untaxed wealth transfers. Periodically, policy proposals have suggested limiting or eliminating the step‑up, taxing unrealized gains at death, or implementing reporting and basis carryover rules to capture more revenue.

Proposals vary in scope and impact; as of June 2024, the step‑up rule remained intact, though it is a frequent subject of tax policy discussion. Any change would require legislative action and would likely include transition rules and thresholds.

Practical checklist for heirs after a death

1. Locate statements showing holdings and FMV at date of death. Ask the brokerage for an "inherited account" statement.
2. Confirm account titling and beneficiary designations; retitle as needed with the custodian (e.g., transfer to the heir’s account or maintain an inherited account).
3. Preserve documentation: date‑of‑death valuations, appraisals for private assets, trust and will documents, Form 706 if filed.
4. Get appraisals for real estate, private business interests and illiquid assets.
5. If selling inherited assets, request cost basis reporting from the broker and reconcile Form 1099‑B against your records when preparing Form 8949 and Schedule D.
6. Consult a tax professional about estate tax filing thresholds and alternate valuation election on Form 706 if relevant.
7. For digital assets, preserve wallet transaction history, private key custody proof, and exchange/chain price evidence as of the valuation date. Consider Bitget Wallet if you seek custodial services with transaction logs.
8. Keep records until you sell the asset and for several years after the tax filing in which the sale is reported.

Frequently asked questions (FAQ)

Q: Do gifted stocks get a step‑up?
A: No — gifts made during the donor’s lifetime generally carry over the donor’s basis (carryover basis) to the donee, not a step‑up at the donor’s death.

Q: Do joint accounts get a step‑up?
A: It depends on ownership form and state law. Joint tenancy with right of survivorship may pass ownership immediately and the surviving owner’s basis rules depend on whether the property is community property or common law property and whether the decedent’s half is included in the estate.

Q: How long should I keep records of inherited asset valuations?
A: Keep documentation until you sell the asset and for at least three to seven years after the tax year in which you report the sale; longer for complex estate matters.

Q: If I inherit cryptocurrency, do I get a step‑up?
A: Generally yes if the crypto is included in the decedent’s estate and properly valued; ensure you document FMV at date of death using a reliable price source.

Q: What forms should I look for from my broker after inheriting stock?
A: Watch for cost basis statements in your account and, when you sell, Form 1099‑B reporting sales. Use Form 8949 and Schedule D to report transactions on your tax return.

References and further reading

• Investopedia — Step‑Up in Basis (overview and examples)
• Fidelity — What is a step‑up in cost basis
• Cornell Law School (Wex) — stepped‑up basis (IRC §1014 summary)
• IRS publications and Form 706 instructions (estate tax reporting) and Form 8949/Schedule D instructions
• Brokerage guidance on inherited accounts and cost basis reporting
• Tax policy analyses from the Peter G. Peterson Foundation and similar research organizations

As of June 2024, these resources continued to describe the step‑up rule and practical valuation and reporting considerations for inherited stocks and other property.

Final notes — next steps and where Bitget can help

Do stocks get stepped up basis? For most inherited, non‑retirement stocks the answer is yes — the tax basis becomes the fair market value at the date of death, which can remove pre‑death unrealized gains from the heir’s tax liability. That rule does not apply to tax‑deferred retirement accounts, nor does it apply to gifts made during life.

If you’re an heir managing inherited securities, begin by collecting date‑of‑death valuations and broker statements and consult a qualified tax or estate professional before selling or re‑tax‑structuring inherited assets. For digital asset custody and transaction recordkeeping that can simplify valuation and reporting, consider Bitget Wallet; for secondary market liquidity after your basis and title are settled, explore Bitget’s trading platform.

Further assistance: save this checklist, request FMV documentation from custodians, and speak with an estate attorney or CPA to confirm the application of IRC §1014 to your situation.