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How Does Death Impact Income Tax Basis

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  1. Income tax “basis” is an important concept to understand.  Gain or loss on the sale of an asset is equal to the cash received minus the seller’s “basis”.  Basis is generally what someone pays for an asset, plus cash put into the asset after purchase, minus any depreciation allowed.
  2. Death, however, impacts basis.  As a general rule, the basis one has in assets inherited is equal to fair market value of the asset at the decedent’s death (or the value 6 months after death if the estate elects the “alternate valuation date).  If the asset purchased by decedent has increased in value, the basis is “stepped up” to fair market value at decedent’s death.  If the asset has declined in value since purchase, basis is “stepped down” to fair market value at the decedent’s death.

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