A step-up in basis resets the cost basis of an inherited asset to its market value on the date the owner died, so the gain built up during their lifetime is never taxed as a capital gain.
If a parent bought stock for $20,000 that is worth $200,000 when they die, the heir's basis is generally $200,000. Selling soon afterward for $200,000 produces no taxable gain. The same applies to a home and other capital assets held outside retirement accounts.
Traditional IRAs and 401(k)s get no step-up: heirs pay income tax on what they withdraw. Gifts made during life don't get one either, because the recipient generally keeps the giver's basis. That is why planners often suggest keeping highly appreciated assets until death and giving cash or high-basis assets instead.
When an estate files a federal estate tax return, heirs may receive a Schedule A (Form 8971) showing the value they must use as basis. Most estates don't need to file: the 2026 federal estate tax exemption is $15 million per person.
How to check
Get a date-of-death valuation for inherited brokerage accounts and property, and confirm the custodian has updated the basis on each position before anything is sold.
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