Does the Step-Up in Basis Occur Upon Death or When Estate is Probated?

Posted September 10, 2025

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Question:

I sold my apartment last year. My mother’s name was on the property because she helped me with the down payment and credit rating 30 years ago. The question is, did I inherit her half in 2008 when she died or in 2024 at the time of the sale? I had to file paperwork with New York State and get a new Letter of Testamentary, so it would seem to me that the inheritance happened in 2024, but my accountant thinks it should be based on the value in 2008.

Response:

Your accountant is right. You inherited your mother’s interest in the apartment upon her death in 2008 even if you did not complete the necessary probate to establish your title until 2024.

This, of course, has to do with capital gains on the sale of your apartment. Let’s assume for purposes of example that you and your mother bought the apartment for $250,000, that it had a fair market value of $500,000 upon your mother’s death in 2008 and that you sold it for $1 million in 2024.

The capital gain realized on the apartment’s sale is the difference between the sale price and the property’s basis. The basis starts out as the purchase price, in our example, $250,000.

However, when an owner dies, the basis gets adjusted — or “stepped up” — to the fair market value on the date of death. In our example, that was $500,000 when your mother passed away. Since she owned half, the basis in her half was adjusted to $250,000. The basis of your half remained the original $250,000, or $125,000 for just half. Adding the two together, the new basis is $375,000.

If you then sold the property for $1 million, you would have realized capital gain of $625,000. As the homeowner you can exclude $250,000, leaving $375,000 of capital gain.

No wonder you want to use the date of probate rather than the date of death as the adjustment date. In that case the basis in your mother’s share would be adjusted to $500,000, bringing your basis to $625,000 and reducing your taxable gain after your $250,000 exclusion to $125,000.

But think of what this would mean. Everyone could reduce their taxes and, in effect, manipulate the tax system by delaying probate. It would be better to index the $250,000 exclusion for homeowners. That has remained the same since it was implemented in 1997. If it had been indexed for inflation it would be over $500,000 today.