Step-Up In Basis

AAA

DEFINITION of 'Step-Up In Basis'

The readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset.

INVESTOPEDIA EXPLAINS 'Step-Up In Basis'

In most cases, when an asset is passed on to a beneficiary, its value is more than what it was when the original owner acquired it. The asset therefore receives a step-up in basis so that the beneficiary's capital gains tax is minimized - because it is not based on the increase in value from the original purchase price. For example, say your uncle purchased some shares at $2 in 1968 and he left them to you upon his death, at which time the shares are $15. For tax purposes, the shares would receive a step-up in basis, meaning your cost basis for the shares would become the current market price of $15. So, any capital gains tax you pay in the future will be based on the $15, not on the original purchase price of $2.

RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Inherited Stock

    A stock that an individual obtains through an inheritance after ...
  3. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  4. Tax Base

    The assessed value of a set of assets, investments or income ...
  5. Basis

    1. The variation between the spot price of a deliverable commodity ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
RELATED FAQS
  1. Why are fee-based accounts preferred by many high net worth individuals (HNWI)?

    High net worth individuals (HNWIs) often prefer fee-based investment accounts for reasons that include reduced conflicts ... Read Full Answer >>
  2. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  3. What are employee share purchase plans?

    An employee stock purchase plan (ESPP) offers an incentive for employees to participate in their company's profitability ... Read Full Answer >>
  4. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
  5. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Full Answer >>
  6. What are the risks involved in a banker's acceptance?

    College savings accounts are excellent ways to encourage saving for future college costs. Contact your investment professional ... Read Full Answer >>
Related Articles
  1. Taxes

    Will Your Home Sale Leave You With Tax Shock?

    Learn how the newest tax laws apply to the proceeds you earn.
  2. Taxes

    A Tax Primer For Homeowners

    Go beyond interest and find out how mortgage points affect your taxable income.
  3. Professionals

    Advisors: Tips For Providing For Older Clients

    Make sure the needs of baby boomers and their parents are met - if not exceeded.
  4. Home & Auto

    The Advantages Of Vacation Insurance

    With a few simple policy additions you can protect your holiday plans from being ruined.
  5. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  6. Personal Finance

    Get Ready For The Estate Tax Phase-Out

    Changes to federal legislation will affect how your assets are treated once you're gone - be prepared.
  7. Retirement

    Saving Money With A Private Annuity Trust

    Learn about a strategy that could help you reduce taxes, diversify your portfolio and generate income.
  8. Investing

    How To Insure Non-Traditional Assets

    You acquire these assets to hedge against financial turbulence in conventional investment markets. What's the best way to protect them?
  9. Entrepreneurship

    Can I Become An Angel Investor?

    Because of SEC rules, you already need significant assets to become an angel investor.
  10. Taxes

    Top Tax Issues For High-Net-Worth Individuals

    Wealth brings benefits, but from a tax perspective it creates special challenges. Here are some tax issues to pay attention to.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center