How Does the Step-Up in Basis Rule Help Heirs?

 Posted on February 21, 2025 in Estate Planning

When you are ready to think about estate planning, it is important to consider how your heirs and beneficiaries might be impacted by taxes. One important concept to know is called the "step-up in basis." This rule can significantly affect how much your loved ones will owe in taxes after they inherit the assets you leave behind. To learn more about arrangements that address tax concerns, speak with a qualified Maryland estate planning lawyer.

What Does Step-Up in Basis Mean?

The "step-up in basis" refers to inheritance taxes, meaning how the value of an inherited asset is calculated for taxation purposes. Normally, if you sell an asset like real estate or stocks, you are taxed on the profit made from the sale, i.e. the difference between what you bought it for – the basis – and what you sold it for.

However, when you inherit an asset, the IRS allows the basis to be "stepped up" to its market value at the time of the original owner’s death rather than when the asset was originally acquired. If you sell the inherited asset, you are only taxed on any appreciation in value from after you inherited it. 

This is significant, particularly if someone inherits a house they do not need. If you bought a house for $150,000 but it is worth $200,000 when you die and your heirs sell the house for $220,000, they will only be taxed on the $20,000 difference between what it was worth when they acquired it and what they sold it for. Without the step-up in basis, they could have been taxed on the $70,000 difference, which would make this bequeathment feel more like a burden than a gift as you intended.

This is important to know about as you begin thinking about what you want to leave, and for whom. You might be concerned about tax implications for your loved ones and unaware of how the law addresses some of those concerns. An experienced lawyer who has helped others draft estate plans can explain how to leave an inheritance for your loved ones that you are comfortable with.

Schedule a Free Consultation with a Silver Spring, MD Estate Planning Lawyer

As you consider what you want to leave for your loved ones, speak with a knowledgeable Bethesda, MD estate planning attorney who can answer your questions and guide you. At The Eleff Law Group, we are passionate about helping clients create plans that offer them and their families a sense of security. Call us at 301-857-1990 to schedule a free consultation so we can get started.