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Louisiana Step-Up in Basis: Double Step-Up Advantage
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Louisiana Step-Up in Basis: Double Step-Up Advantage

Louisiana is a community property state, so both halves of community property step up in basis at the first spouse's death. See how heirs save on capital gains.

By Settled Editorial

Louisiana is one of only nine community property states, and that status hands married couples one of the biggest tax breaks in estate planning: the double step-up in basis. When the first spouse dies, this rule can wipe out the capital gains tax on a lifetime of appreciation in a home, a brokerage account, or a family business.

This guide explains how the step-up works, why Louisiana couples receive twice the benefit that couples in most states get, and how the state's civil-law rules on succession and usufruct fit around the federal tax result.

What Is Step-Up in Basis?

When you sell an asset, you owe capital gains tax on the difference between the sale price and your "basis" (usually what you paid for it).

Example without step-up:

  • You buy stock for $10,000
  • You sell it for $100,000
  • Capital gain: $90,000
  • Tax owed: roughly $18,000 (at a 20% federal rate)

When you inherit property, your basis "steps up" to the fair market value on the decedent's date of death. That erases the tax on appreciation that built up during the decedent's lifetime.

Example with step-up:

  • Decedent bought stock for $10,000
  • Stock is worth $100,000 at death
  • You inherit it with a stepped-up basis of $100,000
  • You sell it for $100,000
  • Capital gain: $0
  • Tax owed: $0

The step-up comes from Internal Revenue Code Section 1014(a). IRC Section 1223(9) also treats inherited property as long-term automatically, so heirs never pay the higher short-term rate no matter how fast they sell.

The Louisiana Double Step-Up

In a common-law state, when jointly owned property passes at death, only the deceased owner's half steps up. The survivor's half keeps its original basis.

Louisiana works differently. Under IRC Section 1014(b)(6), when the first spouse dies, both halves of community property step up to fair market value, the decedent's half and the surviving spouse's half. This is the double step-up.

Why Louisiana Is Different

Louisiana runs on a community property regime (La. Civ. Code art. 2334 and the articles that follow). Property a couple acquires during the marriage with community funds belongs to the community, and federal law treats the whole of it as includible for basis purposes when the first spouse dies. That is what triggers Section 1014(b)(6). In a separate property state, the same asset would only step up on the decedent's half.

The Tax Savings

ScenarioOriginal BasisValue at DeathStepped-Up BasisGain if Sold
Common-law state (jointly owned)$150,000$650,000$400,000$250,000
Louisiana (community property)$150,000$650,000$650,000$0

In this example, the Louisiana family avoids tax on the entire $250,000 gain by getting the double step-up rather than a single step-up.

Detailed Example

John and Marie, Baton Rouge residents, bought a home in 1995 for $150,000. By 2025 it is worth $650,000. John dies.

In a Common-Law State

If the home were jointly owned in a separate property state:

  • Marie's half: original basis of $75,000
  • John's half: steps up to $325,000
  • Total basis: $400,000

If Marie sells for $650,000:

  • Capital gain: $250,000
  • Federal tax (at a 15% long-term rate): $37,500
  • Louisiana tax (3%): $7,500
  • Total tax: $45,000

In Louisiana

Because the home is community property:

  • Marie's half: steps up to $325,000
  • John's half: steps up to $325,000
  • Total basis: $650,000

If Marie sells for $650,000:

  • Capital gain: $0
  • Federal tax: $0
  • Louisiana tax: $0
  • Total tax: $0

Tax savings: $45,000. Federal long-term capital gains rates are 0%, 15%, or 20% depending on income, so the exact figure varies by bracket, but the pattern holds: the double step-up removes the built-in gain.

Which Property Qualifies

Community Property

Property acquired during the marriage with community funds (wages, salary, or business income) qualifies for the double step-up:

  • Primary residence
  • Investment property bought during the marriage
  • Brokerage and investment accounts funded during the marriage
  • Business interests built during the marriage

Separate Property

Property one spouse owned before the marriage, or received during the marriage by donation or inheritance (La. Civ. Code art. 2341), is separate property. Only the decedent's interest steps up. The surviving spouse's separate property keeps its original basis.

What Does Not Qualify

Retirement accounts. Traditional IRAs, 401(k)s, and similar tax-deferred accounts are income in respect of a decedent. They do not receive a step-up, and distributions stay taxable as ordinary income to the heir.

Assets given away before death. A lifetime gift carries the giver's original basis to the recipient under IRC Section 1015, so gifting an appreciated asset during life forfeits the step-up it would have received at death.

Succession, Usufruct, and Who Takes the Stepped-Up Basis

Louisiana calls the court process a "succession," not probate, and it runs through the parish where the decedent lived. Two civil-law features change who ends up owning the property, even though the federal step-up still applies to whatever passes at death.

A surviving spouse often takes a usufruct over community property (the right to use and enjoy it, close to a life estate), while the decedent's children hold naked ownership of the underlying asset under La. Civ. Code art. 890. Forced heirship can also give certain children (those 23 or younger, or permanently incapable of caring for themselves) a protected share under La. Civ. Code art. 1493.

None of this cancels the step-up. The basis adjustment attaches to the property itself, so the naked owners (often the children) take the underlying asset with the stepped-up basis and use that figure to measure gain when they later sell.

Louisiana Capital Gains Tax

Louisiana has no separate capital gains tax. It taxes capital gains as ordinary income at its individual income tax rate. For tax years beginning on or after January 1, 2025, Louisiana applies a flat 3% individual income tax rate following the 2024 tax-reform legislation (Act 11 of the 2024 Third Extraordinary Session, codified at La. R.S. 47:32).

That matters for inherited property. When an heir sells an asset that received a full step-up, the taxable gain is measured from the date-of-death value, not the decedent's old cost, so a clean step-up can leave little or no gain to tax at the 3% rate. Confirm the current rate with the Louisiana Department of Revenue before filing.

No Louisiana Estate or Inheritance Tax

Louisiana imposes no state estate or inheritance tax. The state inheritance tax was repealed by Act 822 of the 2008 Regular Session, effective January 1, 2012, and no Louisiana estate transfer tax is due for deaths after December 31, 2004. The only transfer-level tax to plan for is the federal estate tax, and that reaches only estates above the federal basic exclusion amount ($13.99 million per person for 2025). For the current exclusion, portability, and how community property affects the gross estate, see our guide to Louisiana and the federal estate tax.

Step-Up vs. Step-Down

The adjustment under IRC Section 1014 works both ways. If an asset is worth less at death than the decedent paid for it, the basis steps down to the lower date-of-death value.

Example:

  • Stock purchased for $100,000
  • Worth $50,000 at death
  • Heir's basis: $50,000

If the heir sells for $50,000, there is no loss to deduct. The built-in loss vanished at death.

Planning note: If an asset carries a built-in loss, selling it before death can preserve the deduction that would otherwise disappear.

Alternate Valuation Date

An executor can sometimes elect to value the estate six months after death instead of on the date of death under IRC Section 2032. That election is available only when it lowers both the gross estate and the estate tax, so it rarely helps estates below the federal exemption. For most Louisiana successions, the date-of-death value sets the stepped-up basis.

Keep the Right Records

To support the stepped-up basis on a later sale, keep documentation that shows:

  • Community property character. Marriage records, the date of acquisition, the source of funds, and the deed or title showing community ownership.
  • Fair market value at death. A real estate appraisal, brokerage statements, or the succession inventory as of the date of death.
  • The starting point. Original purchase documents, which show how much appreciation the step-up covered.

How the Step-Up Affects Louisiana Estate Planning

Revocable trusts. Property held in a revocable living trust keeps its community property character, so the double step-up still applies when the first spouse dies.

Irrevocable transfers. Moving an asset out of the estate during life, by gift or into some irrevocable trusts, can forfeit the step-up. Weigh the loss of the basis adjustment against what the transfer is meant to accomplish.

Basis-aware sequencing. Many families hold appreciated assets until death to capture the step-up and sell loss assets during life to lock in the deduction.

Because usufruct, forced heirship, and community property classification interact with the federal rules, a Louisiana succession attorney or tax professional can confirm how the step-up applies to a specific estate.

Frequently Asked Questions

Does Louisiana have a double step-up in basis?

Yes. Louisiana is a community property state (La. Civ. Code art. 2334 and following), so under IRC Section 1014(b)(6) both halves of community property receive a stepped-up basis to fair market value when the first spouse dies. This can erase capital gains built up during the marriage.

Does Louisiana tax capital gains on inherited property?

Louisiana taxes capital gains as ordinary income at its flat individual income tax rate (3% for tax years beginning on or after January 1, 2025, per Act 11 of the 2024 Third Extraordinary Session). A full step-up to date-of-death value can reduce or eliminate the gain that would otherwise be taxed.

Is there a Louisiana estate or inheritance tax?

No. Louisiana has no estate tax and no inheritance tax. The inheritance tax was repealed effective January 1, 2012, and no estate transfer tax is due for deaths after December 31, 2004.

Who gets the stepped-up basis when a surviving spouse holds a usufruct?

The step-up attaches to the property itself. When a surviving spouse takes a usufruct and the children hold naked ownership under La. Civ. Code art. 890, the naked owners take the underlying property with the stepped-up basis for a later sale.

Do retirement accounts get a step-up in basis in Louisiana?

No. Traditional IRAs and 401(k)s are income in respect of a decedent. They do not receive a basis step-up, and withdrawals stay taxable as ordinary income to the heir.

What if the property lost value before death?

Then the basis steps down to the lower date-of-death value under IRC Section 1014. A built-in loss disappears at death, so selling a loss asset before death can preserve the deduction.

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Last Updated: July 2026. Tax rules are complex and change frequently. This guide provides general information. Consult with a tax professional or estate planning attorney for advice specific to your situation. It is not legal advice.