Step-up in basis planning strategies can save your heirs real money, but only if the plan is built around how the rule works. The step-up decides how much capital gain your family may owe when they sell what you leave behind. Here's the rule, the community property wrinkle that matters in Nevada, and where plans go wrong.
What is a step-up in basis?
It resets the tax cost of inherited property to what it was worth on the date of death. Under Section 1014(a), the basis of property acquired from a decedent generally becomes its fair market value at the date of death, so gain built up during your lifetime is generally not taxed to your heirs when they sell.
The IRS says an heir's basis is typically the fair market value at the date of death, or the alternate valuation date if the estate elects it. The rule works both ways: if the property is worth less than you paid, the basis resets down too.
Why does community property matter in Nevada?
Nevada is one of the nine community property states listed by the IRS, and that changes the math for married couples. Under Section 1014(b)(6), the surviving spouse's half of community property can also receive a stepped-up basis, if at least half of the whole community interest is included in the decedent's gross estate.
Here is an illustration with made-up numbers, not a client result. A couple buys property for $200,000, it is worth $1,000,000 when the first spouse dies, and the survivor sells at that price.
| Situation | Heir's or seller's basis | Taxable gain on a $1,000,000 sale |
|---|---|---|
| Gift during life (donor's basis carries over) | $200,000 | $800,000 |
| Inherited, held as community property | $1,000,000 | $0 |
| Inherited, decedent owned half, survivor half (not community) | $600,000 | $400,000 |
How much can the step-up save?
In the made-up example above, the gap between the first and second rows is $800,000 of gain. Long-term gains are taxed at 0%, 15% or 20% depending on income, with the 3.8% net investment income tax possibly on top.
At the top combined rate of 23.8%, $800,000 of gain would cost about $190,400.
The last row reflects the decedent's half stepping up to $500,000 and the survivor's half keeping its $100,000 cost, for a total of $600,000. That is why titling matters.
What planning mistakes cost families the step-up?
The common one is moving appreciated property before you die without checking which basis rules apply. For a gift, the IRS says the recipient's basis for figuring gain is generally the same as the donor's adjusted basis, so a lifetime gift of a low-basis asset hands your child your low basis.
There is a second trap. If you give appreciated property to someone who dies within a year and it comes back to you, Section 1014(e) gives you the decedent's adjusted basis rather than a step-up. Retitling and trust transfers can each change the result, so run the numbers first and document why.
How does basis connect to the estate tax exemption?
Basis decides your heirs' capital gains, and the exemption decides estate tax. Giving assets away can shrink an estate but costs the step-up, so the two goals pull against each other for larger estates.
Read how the pieces fit in our 2026 estate tax exemption guide and in advanced tax planning for family estates.
If you'd like to see how this applies to your situation, book your tax strategy call or call 702-852-2577. For how we approach the bigger picture, see our advanced tax strategies page.
About the author: D. Lenny Whiting, Esq., CPA, MS is the Managing Partner of CPA Attorney, LLC in Las Vegas. He is a licensed attorney in Nevada and Utah and a Nevada CPA. More about Lenny.
This article is general information, not legal or tax advice for your situation. Tax rules change, and results depend on your facts.
