Mark Kohler explains how inherited property gets a stepped-up basis at death. A grandmother's house worth $1.2 million, originally bought for $200,000, passes to heirs with a $1.2 million cost basis, so they can sell it immediately and owe zero capital gains tax.
So let's go back to our example. Remember, Grandma's in the home, it's worth $1.2 million, she bought it for $200 grand. There's equity there of $1 million. Arguably, that's the gain. That's called a built-in gain. Bought for $200, worth $1.2. Now, if she sold it during her life, she'd have a portion of that would be the sale of home exemption, whole other topic. But she's going to live in it till she dies. And if she had a will or a trust, that stepped-up basis would go to the kids. And what that means is they would inherit the home, one or all three of them, and it would be stepped up to $1.2 million. So they could sell the home on day two, pay zero tax. Okay.
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