Step Up Basis Law and Legal Definition

Step-up basis is a concept commonly used in estate law in which when property is passed upon someone's death, the person that inherits the property will have a "basis" (or equity) in the property equal to the property's fair market value as of the date of death. Thus, if the person who inherits the property were to immediately sell it, no gain on the sale would be recognized and no income tax would be due.

The step-up basis has major advantages. It prevents double taxation of assets at death -- first by the capital gains tax and again by the estate tax. Also, it greatly simplifies the settling of estates by executors. Under step-up, they need only calculate the value of assets at death, and don't need to know their original purchase price or any adjustments to it, such as depreciation.