Florida Step-Up in Basis: How Inherited Property Tax Basis Works

The step-up in basis is one of the best tax breaks available to people who inherit property in Florida. When you inherit assets, your tax basis "steps up" to the fair market value at the date of death. This can wipe out years or decades of capital gains. Beneficiaries can save thousands or even hundreds of thousands of dollars in taxes when they sell inherited property.

This guide explains how step-up in basis works, which assets qualify, and how to document your basis for tax purposes.

What Is Step-Up in Basis?

When you buy an asset, your "basis" is what you paid for it. When you sell, you pay capital gains tax on the difference between your basis and the sale price.

The step-up in basis rule changes this for inherited assets. You do not inherit the original owner's basis. Instead, you receive a new basis equal to the asset's fair market value at the date of death.

Quick Example: Why Step-Up Matters

Without Step-Up (Lifetime Gift):

Parent bought home in 1985 for $50,000
Parent gives home to child in 2024 (worth $500,000)
Child's basis: $50,000 (carryover basis)
Child sells for $500,000
Capital gains tax on $450,000

With Step-Up (Inheritance):

Parent bought home in 1985 for $50,000
Parent dies in 2024 (home worth $500,000)
Child inherits with basis of $500,000 (stepped-up)
Child sells for $500,000
Capital gains tax on $0

The step-up eliminated $450,000 of taxable gain. That is a tax savings of roughly $67,500 to $90,000 at federal rates.

How Step-Up in Basis Works

The Basic Rule

Under Internal Revenue Code Section 1014, assets included in a deceased person's estate receive a new basis equal to fair market value at death. The IRS publishes this rule in Publication 551.

Valuation Date Options

You have two options for most estates.

Date of Death Value: This is the standard approach. Your basis equals fair market value on the date the person died.

Alternate Valuation Date: This option is only available for estates filing federal estate tax returns (Form 706). The estate can choose to value assets 6 months after death if values have dropped.

Most Florida estates use date-of-death value. Florida has no estate tax. Federal estate tax only applies to very large estates (over $13.99 million in 2025).

Assets That Receive Step-Up

The IRS allows step-up for assets included in the deceased person's gross estate for estate tax purposes.

Real Estate:

Primary residence
Vacation homes
Rental properties
Vacant land
Commercial property

Investment Assets:

Stocks and mutual funds
Bonds
Brokerage accounts
Business interests

Personal Property:

Vehicles
Art and collectibles
Jewelry
Antiques

Trust Assets:

Property in revocable living trusts
Property over which the deceased had a general power of appointment

Assets That Do NOT Receive Step-Up

Income in Respect of a Decedent (IRD):

Traditional IRA and 401(k) accounts
Unpaid wages and bonuses
Installment sale proceeds
Unpaid partnership income

The IRS taxes these assets as ordinary income when withdrawn, regardless of step-up rules.

Property Given Away Before Death: Assets transferred during the person's lifetime keep carryover basis.

Certain Trust Assets: Property in irrevocable trusts may not receive step-up, depending on how the trust was structured.

Florida-Specific Considerations

No State Capital Gains Tax

Florida has no state income tax. What this means for you:

No state capital gains tax on inherited property
Only federal capital gains tax applies
Florida is a good state for inheriting appreciated assets

Homestead Property

Florida homestead property receives step-up like other real estate. A few things to know:

Homestead has special descent rules under the Florida Constitution
Property tax benefits (Save Our Homes cap) may or may not transfer to heirs
Talk to a Florida attorney about homestead planning

Separate Property State Rules

Florida is a separate property state, not a community property state. This affects step-up for married couples.

In Community Property States: Both halves of community property receive step-up when the first spouse dies.

In Florida (Separate Property): Only the deceased spouse's interest receives step-up. The surviving spouse's original basis continues for their share.

Here is an example for a Florida married couple:

Couple bought home jointly for $100,000 ($50,000 basis each)
Home worth $500,000 when first spouse dies
Surviving spouse's basis: $50,000 (original) + $250,000 (stepped-up inherited half) = $300,000
If the surviving spouse sells for $500,000, capital gain is $200,000

Documenting Step-Up in Basis

Good documentation is a must. The IRS may question your basis years later when you sell.

What to Document

Date of Death Value: Get formal documentation of fair market value as of the date of death.

Real Estate:

Professional appraisal dated as of death
Comparable sales analysis
County property appraiser records (assessed value may differ from market value)

Securities:

Brokerage statements showing date-of-death values
Historical stock prices (available online from financial sites)
Mutual fund NAV on date of death

Business Interests:

Professional business valuation
Buy-sell agreement values
Financial statements

Personal Property:

Appraisals for items worth more than a few thousand dollars
Estate sale records
Insurance documentation

Keep Records Indefinitely

Store step-up documentation for as long as you own the property plus 7 years after sale. For real estate you might hold for decades, keep records indefinitely.

Step-Up and Different Ownership Structures

Solely Owned Property

Full step-up to fair market value at death.

Joint Tenancy with Right of Survivorship

Spouses:

Only the deceased spouse's 50% receives step-up
The surviving spouse's 50% keeps original basis

Non-Spouses:

The deceased person's share receives step-up
The survivor's share keeps original basis
The exact fraction depends on contribution and state law

Tenancy by the Entirety (Married Couples)

In Florida, married couples often hold real estate as tenants by the entirety.

Only the deceased spouse's 50% receives step-up
Same result as joint tenancy for basis purposes

Revocable Living Trust

Property in a revocable living trust receives step-up because the IRS includes it in the grantor's estate.

Irrevocable Trust

This depends on the trust structure.

If included in grantor's estate (such as a retained life estate): receives step-up
If removed from grantor's estate: may not receive step-up
Talk to a tax professional to analyze your specific trust

Planning Opportunities

Hold Appreciated Assets Until Death

If you have highly appreciated assets:

Holding until death provides step-up for heirs
Selling during life triggers capital gains tax
Gifting during life passes carryover basis (no step-up)

Choose Which Assets to Gift vs. Leave

Gift During Life:

Assets with little appreciation
Assets that may decline in value
Assets you want the beneficiary to have now

Leave at Death:

Highly appreciated assets (stocks, real estate)
Assets the beneficiary might sell

Watch for Step-Down

If assets have lost value, step-up becomes "step-down."

Basis adjusts to the lower fair market value
The original higher basis is lost
Consider selling depreciated assets before death to harvest the loss

Step-Up and Estate Tax

When Estate Tax Applies

Federal estate tax (2025):

Applies to estates exceeding $13.99 million
Top rate of 40%
Most Florida estates do not owe estate tax

Florida estate tax:

None (Florida repealed its estate tax)

Step-Up Regardless of Estate Tax

Assets receive step-up whether or not the estate owes estate tax. The two rules are separate.

Calculating Gain on Sale of Inherited Property

Formula

Capital Gain = Sale Price - Stepped-Up Basis - Selling Costs

Sample Calculation

Inherited property fair market value at death: $400,000
Sale price: $425,000
Selling costs (commission, closing): $25,000
Stepped-up basis: $400,000
Taxable gain: $425,000 - $400,000 - $25,000 = $0

Long-Term vs. Short-Term

Inherited property automatically qualifies as long-term capital gains property, regardless of how long you hold it before selling. What this means for you:

Lower tax rates (0%, 15%, or 20% depending on income)
Not subject to higher short-term rates

Frequently Asked Questions

Does inherited property get step-up in basis in Florida?

Yes. Federal tax law (IRC Section 1014) provides step-up for inherited property regardless of which state you live in. Florida has no state rules that change this.

Do retirement accounts get step-up in basis?

No. IRAs, 401(k)s, and similar accounts are "income in respect of a decedent" (IRD). Beneficiaries pay income tax on distributions at their ordinary income rate.

What if I cannot determine the date-of-death value?

Get the best evidence available: appraisals, comparable sales, brokerage statements, county records. For real estate, you may need a retrospective appraisal (an appraisal estimating historical value).

How long do I have to keep step-up documentation?

Until you sell the property plus 7 years (IRS audit period). For property you might hold indefinitely, keep records indefinitely.

Does step-up apply to property received through a living trust?

Yes. The IRS includes revocable living trust assets in the grantor's estate. They receive step-up just like assets passing through a will.

What if the property decreased in value?

The basis steps down to fair market value at death. The higher original basis is lost. If possible, sell depreciated assets before death to capture the loss.

Is there a Florida inheritance tax?

No. Florida has no inheritance tax and no estate tax. Only federal estate tax applies (for estates over $13.99 million in 2025).

Related Florida Guides

Sources:

Internal Revenue Code Section 1014, Basis of Property Acquired from a Decedent, U.S. Government Publishing Office, 2024, https://uscode.house.gov/
IRS Publication 551, Basis of Assets, Internal Revenue Service, 2024, https://www.irs.gov/publications/p551
IRS Publication 559, Survivors, Executors, and Administrators, Internal Revenue Service, 2024, https://www.irs.gov/publications/p559
Florida Constitution Article VII Section 6, Florida Legislature, 2024, https://www.flsenate.gov/laws/constitution

Last Updated: January 2026. This guide provides general information about step-up in basis for inherited property. Tax situations vary. Talk to a tax professional for advice specific to your situation.