Mississippi Step-Up in Basis for Inherited Property

The step-up in basis is one of the strongest tax breaks for Mississippi families who inherit property. When you inherit an asset, its tax basis resets to the fair market value on the date the owner died. Decades of appreciation drop off the books for tax purposes, and you owe capital gains tax only on any increase in value after you inherited it.

Understanding the step-up matters whether you plan to keep inherited property, sell it, or pass it on. This guide explains the federal rule, walks through how to calculate your new basis, and covers how Mississippi taxes the gain when you sell. Mississippi is a common-law, separate-property state, so the double step-up that community property states enjoy does not apply here.

What Is Step-Up in Basis?

When someone buys property, they have a "tax basis" in it, usually what they paid. When they sell, they owe capital gains tax on the difference between the sale price and that basis.

The Problem Without Step-Up

Imagine your mother bought a house in Jackson in 1985 for $60,000. When she died in 2026, the house was worth $280,000. If she had given you the house as a gift during her life, your basis would carry over at her original $60,000. Selling for $280,000 would leave you with $220,000 in taxable gain.

How Step-Up Fixes This

Because you inherited the house instead of receiving it as a gift, your basis steps up to the fair market value on the date of death: $280,000. Sell for $280,000 and your capital gain is $0. Even if you sell a year later for $295,000, your taxable gain is only $15,000 rather than $235,000.

The Legal Foundation

The step-up comes from Internal Revenue Code Section 1014. It applies to property acquired from a decedent, whether through:

• Chancery court probate
• A revocable living trust
• Joint tenancy with right of survivorship (for the decedent's share)
• A transfer-on-death deed
• A beneficiary designation

How Step-Up Works for Mississippi Inherited Property

What Qualifies for Step-Up

Nearly every capital asset inherited from a decedent receives a step-up:

• Real estate (homes, land, farmland, commercial property)
• Stocks and bonds
• Mutual funds and ETFs
• Business interests
• Collectibles and artwork
• Personal property with real worth

What Does Not Qualify

Certain assets do not receive a step-up:

• Income in respect of a decedent (IRD): Traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. The beneficiary pays ordinary income tax on distributions.
• Property gifted before death: If the decedent gave you the property during their life, you generally take their original basis (carryover basis under IRC Section 1015).
• Assets transferred within one year of death: If you gave property to the decedent and it returned to you within one year of their death, no step-up applies (IRC Section 1014(e)).

Common-Law State, Single Step-Up

Mississippi is a common-law, separate-property state, not a community property state. That distinction controls how much of a jointly owned asset steps up:

• Only the decedent's share of jointly owned property receives a step-up.
• If spouses own a home as joint tenants with survivorship, only half the home steps up when the first spouse dies.
• The surviving spouse's half keeps its original basis.

This differs from community property states, where the entire asset can step up on the first spouse's death. In Mississippi, plan for a single step-up on the decedent's half.

Calculating Your New Tax Basis

Step 1: Determine Fair Market Value at Death

The date-of-death value becomes your new basis. By asset type:

Real estate:

• Get a professional appraisal as of the date of death
• The estate may already have a valuation from the chancery court inventory
• Keep this documentation permanently

Stocks and publicly traded securities:

• Use the average of the high and low trading prices on the date of death
• If death falls on a weekend or holiday, average the trading prices from the business days before and after

Closely held business interests:

• Require a professional business valuation
• The estate may have obtained one for probate or federal estate tax purposes

Personal property:

• Get appraisals for high-value items
• Base fair market value on comparable sales

Step 2: Check the Alternate Valuation Date

If the estate files a federal estate tax return (Form 706), the executor may elect the alternate valuation date, which is six months after death (IRC Section 2032). The executor can make this election only if it lowers both the gross estate and the federal estate tax. When elected, your basis is the value on that alternate date, or the value on the date of sale if the asset was sold within the six months.

Most Mississippi estates never file a Form 706 because the federal exemption is so high, so this election is uncommon.

Step 3: Add Post-Death Improvements

After you inherit the property, capital improvements you make increase your basis:

• Renovations and additions
• Major upgrades that add value (new roof, new HVAC)
• Land improvements

Keep receipts for every improvement.

Example Calculation

Step-Up for Different Asset Types

Real Estate

Real estate is the most common asset where the step-up matters. In Mississippi, inherited real estate can arrive through several channels:

• Chancery court probate: The estate takes the stepped-up basis, which passes to the heir.
• Trust: Property held in a Mississippi revocable living trust receives the same step-up as probate property.
• Transfer-on-death deed: Property passing by a Mississippi transfer-on-death deed receives the step-up.
• Survivorship deed: The decedent's share steps up; the surviving owner's share does not.

Stocks and Securities

Each security held at death steps up to its date-of-death value. This helps most with stocks held for decades that carry large unrealized gains. For mutual funds, the basis steps up to the net asset value on the date of death. For brokerage accounts, ask the broker for a date-of-death statement.

Family Businesses and Farms

Business and farm interests step up too, and the mechanics depend on the entity:

• Sole proprietorship: Each business asset steps up individually.
• Partnership or LLC: The inherited interest steps up, and a Section 754 election can adjust the inside basis of entity assets.
• S corporation: The stock basis steps up, but the inside basis of corporate assets does not change.

Collectibles and Personal Property

Art, antiques, jewelry, vehicles, and other high-value personal property all step up. Document values with professional appraisals at the time of death.

Mississippi Capital Gains Tax

Mississippi has no separate capital gains tax. It taxes capital gains as part of individual income under Miss. Code Section 27-7-5.

Mississippi Income Tax Rate

For 2026, Mississippi applies a flat 4.4% rate on taxable income above the first $10,000, which is not taxed. The 2025 Build Up Mississippi Act is phasing the individual income tax rate down in later years, stepping it toward 3% and, under the plan, toward elimination. Because the rate is scheduled to change, confirm the current figure with the Mississippi Department of Revenue for the year you sell.

Deductions That Reduce the Gain

Several costs reduce your taxable gain:

• Selling expenses (real estate commissions, closing costs)
• Legal and accounting fees tied to the sale
• Capital improvements (added to your basis)

Federal Capital Gains Tax

At the federal level, long-term capital gains (assets held more than one year) receive lower rates:

These are 2025 thresholds; amounts adjust annually for inflation.

Net Investment Income Tax

An extra 3.8% tax applies to net investment income (including capital gains) for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly).

Holding Period for Inherited Property

Inherited property is treated as long-term automatically, no matter how long the decedent or the heir actually held it (IRC Section 1223(9)). You qualify for the lower long-term rates even if you sell the day after you inherit.

No Mississippi Estate or Inheritance Tax

Mississippi levies no state estate tax and no state inheritance tax. Its former estate tax was tied to the federal state death tax credit, which was repealed, leaving no Mississippi death tax. That means:

• No state estate tax on any Mississippi estate, regardless of size
• No state inheritance tax on heirs
• Only the federal estate tax applies, and only to estates above the federal exemption

The absence of a state death tax makes the step-up even more useful for Mississippi heirs. You receive the stepped-up basis without paying any state-level transfer tax on the inheritance. For how the federal estate tax can affect large estates, see the Mississippi federal estate tax guide.

Planning Strategies to Maximize Step-Up

Hold Appreciated Assets Until Death

If you own highly appreciated assets, holding them until death lets your heirs take a full step-up. Selling before death triggers a capital gains tax that the step-up could have erased.

Gift Low-Basis Assets, Not High-Gain Ones

When you gift property during life, the recipient takes your original basis (carryover basis). That wipes out the step-up. Keep highly appreciated assets in your estate and gift assets with little built-in gain instead.

Use a Revocable Living Trust

Property in a revocable living trust takes the same step-up as property passing through chancery court. A trust gives you probate avoidance without giving up the tax benefit. Use the Mississippi probate fee calculator to see what avoiding Mississippi probate costs can save, and read how to avoid probate in Mississippi for the full menu of options.

Consider How Married Couples Hold Title

Because Mississippi is a separate-property state, only the decedent's half of jointly owned property steps up. Married couples should weigh:

• How each asset is titled
• Whether one spouse holds far more appreciated property
• Whether a trust could help preserve basis planning for both shares

Document the Basis

The IRS can challenge a claimed basis. Protect yourself by getting appraisals at the time of death, keeping the chancery court inventory and valuation documents, and holding on to receipts for every post-inheritance improvement and selling expense.

Record-Keeping Requirements

Good records support the stepped-up basis you claim.

At Time of Inheritance

• Date-of-death appraisals for real estate
• Brokerage statements showing date-of-death values
• The estate inventory filed with the chancery court
• Business and farm valuations
• Appraisals of high-value personal property

During Ownership

• Receipts for capital improvements
• Property tax records
• Records that separate improvements from routine repairs

At Time of Sale

• Settlement statements (Closing Disclosure)
• Real estate commission receipts
• Legal and accounting fees
• Other selling expenses

Keep these documents for at least three years after filing the tax return that reports the sale. Keeping them longer is wise, since real estate can sit in a family for decades.

Frequently Asked Questions

Does Mississippi give a double step-up in basis?

No. Mississippi is a common-law, separate-property state, not a community property state. When spouses jointly own property, only the deceased spouse's half steps up to fair market value at death under IRC Section 1014. The surviving spouse's half keeps its original basis.

Does Mississippi tax the capital gain when I sell inherited property?

Yes. Mississippi taxes capital gains as ordinary income, not at a separate rate. For 2026 the rate is a flat 4.4% on taxable income above the first $10,000, and the 2025 Build Up Mississippi Act is scheduling the rate down in later years. A step-up reduces the taxable gain, so selling at the stepped-up value produces little or no Mississippi taxable gain.

Does Mississippi have an estate or inheritance tax?

No. Mississippi has no state estate tax and no state inheritance tax, so heirs receive the stepped-up basis without any state transfer tax on the inheritance.

Do retirement accounts get a step-up in Mississippi?

No. Traditional IRAs, 401(k)s, and other tax-deferred accounts are income in respect of a decedent, so they do not receive a basis step-up. The beneficiary pays ordinary income tax on withdrawals.

What if I received the property as a gift before death?

A lifetime gift takes a carryover basis under IRC Section 1015, meaning you keep the giver's original basis. Only property transferred at death receives the step-up under IRC Section 1014.

Can I sell inherited Mississippi property right away and still get the step-up?

Yes. Your basis is the date-of-death fair market value, and inherited property is treated as long-term automatically under IRC Section 1223(9), so a sale soon after death still qualifies for long-term capital gains rates.

Related Mississippi Guides

• Selling Inherited Property in Mississippi
• Mississippi Federal Estate Tax
• Mississippi Probate Costs
• Mississippi Revocable Living Trust
• Mississippi Transfer-on-Death Deed
• Transferring Assets After Death in Mississippi

Sources

Last Updated: July 2026. This guide provides general information about the step-up in basis for Mississippi inherited property. Tax situations vary by individual. Confirm anything that affects your situation with a tax professional, a CPA, or a licensed Mississippi attorney. It is not legal advice.