Ohio Step-Up in Basis for Inherited Property: Tax Guide

Ohio step up in basis inherited property rules can save heirs thousands of dollars in capital gains taxes. When you inherit property in Ohio, the tax basis of that property is "stepped up" to its fair market value on the date of the decedent's death. This means decades of appreciation are effectively erased for tax purposes, and you only owe capital gains tax on any increase in value after you inherited it.

Understanding how the step-up in basis works matters whether you plan to keep inherited property, sell it, or transfer it. This guide explains the rules, shows you how to calculate your new basis, and covers strategies that can maximize your tax savings.

What Is Step-Up in Basis?

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

The Problem Without Step-Up

Imagine your mother bought a house in Akron in 1985 for $60,000. When she passed away in 2025, the house was worth $280,000. Without the step-up rule, if she had given you the house as a gift during her lifetime, your basis would have been her original $60,000 (called "carryover basis"). Selling for $280,000 would mean $220,000 in taxable capital gains.

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. If you sell for $280,000, your capital gain is $0. Even if you sell a year later for $295,000, your taxable gain is only $15,000 instead of $235,000.

The Legal Foundation

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

• Probate
• A trust
• Joint tenancy with right of survivorship (for the decedent's share)
• Transfer-on-death deed
• Beneficiary designation

How Step-Up Works for Ohio Inherited Property

What Qualifies for Step-Up

Nearly all capital assets inherited from a decedent receive a step-up:

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

What Does Not Qualify

Certain assets do not receive a step-up in basis:

• Income in respect of a decedent (IRD): Traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. Distributions are taxed as ordinary income to the beneficiary.
• Property gifted before death: If the decedent gave you the property as a gift during their lifetime, you generally take their original basis (carryover basis).
• Assets transferred within one year of death: If you gave property to the decedent and it was returned to you within one year of their death, no step-up applies (IRC 1014(e)).

Community Property vs. Separate Property

Ohio is a separate property state, not a community property state. This means:

• 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 property gets a step-up when one spouse dies
• The surviving spouse's half retains its original basis

This is different from community property states where the entire property can receive a step-up.

Calculating Your New Tax Basis

Step 1: Determine Fair Market Value at Death

The date-of-death value becomes your new basis. For different asset types:

Real Estate:

• Get a professional appraisal as of the date of death
• The estate may have an appraisal from probate proceedings
• 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 the date of 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 estate tax or probate purposes

Personal Property:

• Appraisals for items of high value
• Fair market value based on comparable sales

Step 2: Adjust for the Alternate Valuation Date

If the estate filed a federal estate tax return (Form 706), the executor may have elected the alternate valuation date, which is six months after death. If this election was made, your basis is the value on that alternate date (or the date of disposition if the asset was sold within six months).

Most Ohio estates will not file a Form 706 because the federal exemption is so high, making this election uncommon.

Step 3: Add Post-Death Improvements

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

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

Keep receipts and records of all improvements.

Example Calculation

Step-Up for Different Asset Types

Real Estate

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

• Probate: The estate receives the stepped-up basis through full administration, which passes to the heir
• Trust: Property held in a revocable living trust receives the same step-up as probate property
• TOD deed: Property passing by transfer-on-death deed receives the step-up
• Survivorship deed: The decedent's share receives a step-up; the surviving owner's share does not

Stocks and Securities

Each security held at death receives a step-up to its date-of-death value. This can be especially helpful for stocks held for decades with large unrealized gains.

Mutual funds: The basis steps up to the net asset value (NAV) on the date of death, eliminating all previously unrealized gains within the fund.

Brokerage accounts: Contact the broker to obtain date-of-death values. Most brokers provide a date-of-death statement.

Family Businesses

Business interests (partnerships, LLCs, S corporations, sole proprietorships) receive a step-up. The specifics depend on the entity type:

• Sole proprietorship: Each business asset receives an individual step-up
• Partnership/LLC: The inherited interest receives a step-up, and a Section 754 election can adjust the inside basis of partnership 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 valuable personal property all receive a step-up. Document values with professional appraisals at the time of death.

Ohio Capital Gains Tax

Ohio does not have a separate capital gains tax. Instead, capital gains are taxed as ordinary income under Ohio's income tax system.

Ohio Income Tax Rates (2025)

Ohio uses a graduated income tax system. As of 2025, the rates range from approximately 2.75% to 3.5% on taxable income. Ohio has been gradually reducing its income tax rates, so check current rates for the year you sell.

Ohio Municipal Income Tax

Many Ohio cities and municipalities impose their own income tax, typically ranging from 1% to 3%. Some municipalities tax capital gains, while others exempt investment income. Check with your local tax authority.

Deductions

Ohio allows several deductions that may reduce your taxable gain:

• Selling expenses (real estate commissions, closing costs)
• Transfer taxes
• Legal and accounting fees related 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 preferential rates:

These are 2025 thresholds; amounts adjust annually for inflation.

Net Investment Income Tax

An additional 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 automatically treated as long-term, regardless of how long the decedent or the heir actually held it. This means you qualify for the lower long-term capital gains rates even if you sell the day after you inherit it.

No Ohio Estate Tax (Since 2013)

Ohio repealed its estate tax effective January 1, 2013. This means:

• No state estate tax on any Ohio estate, regardless of size
• No state inheritance tax
• Only the federal estate tax applies (for estates exceeding the federal exemption)

The absence of a state estate tax makes the step-up in basis even more beneficial for Ohio heirs. You receive the stepped-up basis without paying any state-level transfer tax on the inheritance.

For more on how federal estate tax may affect large Ohio estates, see our federal estate tax guide.

Planning Strategies to Maximize Step-Up

Hold Appreciated Assets Until Death

The most straightforward strategy: if you have highly appreciated assets, holding them until death allows your heirs to receive a full step-up. Selling before death triggers capital gains tax that could have been avoided.

Gift Low-Basis Assets to the Right Person

If you want to gift assets during your lifetime, gift assets with a low amount of unrealized gain. Keep highly appreciated assets in your estate for the step-up benefit.

Avoid Gifting Highly Appreciated Property

When you gift property during your lifetime, the recipient receives your original basis (carryover basis). This eliminates the step-up benefit. For highly appreciated assets, it is almost always better to transfer them at death.

Use a Revocable Living Trust

Property in a revocable living trust receives the same step-up as property passing through probate. Using a trust gives you probate avoidance without sacrificing the tax benefit. Use our Ohio probate fee calculator to see how much you could save by avoiding Ohio probate costs.

Consider the Surviving Spouse's Basis

Because Ohio is a separate property state, only the decedent's half of jointly owned property receives a step-up. Married couples should consider:

• How property is titled
• Whether one spouse has far more appreciated assets
• Whether to use trusts to maximize the step-up for both spouses' shares

Document Everything

The IRS can challenge your claimed basis. Protect yourself by:

• Getting appraisals at the time of death
• Keeping the estate's inventory and valuation documents
• Maintaining records of all post-inheritance improvements
• Keeping sale-related expense records

Record-Keeping Requirements

Good records are important to claim your stepped-up basis:

At Time of Inheritance

• Date-of-death appraisals for real estate
• Brokerage statements showing date-of-death values
• Estate inventory filed with probate court
• Business valuations
• Appraisals of valuable personal property

During Ownership

• Records of capital improvements
• Property tax records
• Insurance records
• Maintenance and repair records (to distinguish improvements from repairs)

At Time of Sale

• Settlement statements (HUD-1 or Closing Disclosure)
• Real estate commission receipts
• Legal and accounting fees
• Transfer tax receipts
• Any other selling expenses

Keep these records for at least three years after filing the tax return that reports the sale, though keeping them longer is advisable.

Frequently Asked Questions

Does the step-up apply if there is no probate?

Yes. The step-up in basis applies to all property acquired from a decedent, regardless of whether it goes through probate. Property passing through a trust, TOD deed, joint tenancy, or beneficiary designation all receive the step-up.

What if I sell inherited property immediately?

You can sell immediately and still benefit from the step-up. Your basis is the date-of-death value, and the gain (if any) is the difference between your sale price and that value. Inherited property is always treated as long-term for capital gains purposes.

How do I prove the date-of-death value?

For real estate, get a retroactive appraisal as close to the time of death as possible. For securities, obtain date-of-death statements from brokers. For the estate inventory, the probate court filing includes valuations.

Does the step-up apply to property in an irrevocable trust?

It depends on the type of irrevocable trust. If the grantor retained certain powers (making the trust a "grantor trust" for tax purposes), the property may receive a step-up. If the trust is a completed gift, the property generally does not receive a step-up. Consult a tax professional.

What about property that decreased in value?

The step-up works both ways. If property declined in value, the basis "steps down" to the lower fair market value at death. This means the heirs lose the ability to claim the loss that the decedent could have claimed.

Can I use the $250,000/$500,000 home sale exclusion on inherited property?

You can use the Section 121 exclusion only if you lived in the inherited home as your primary residence for at least two of the five years before selling. You cannot use the exclusion simply because the decedent lived there.

Related Ohio Guides

• Selling Inherited Property in Ohio
• Ohio Estate Tax: Federal Rules and Planning
• Ohio Probate Cost Calculator
• Ohio Revocable Living Trust
• Ohio Transfer-on-Death Deed

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Last Updated: February 2026. This guide provides general information about the step-up in basis for Ohio inherited property. Tax situations vary by individual. Consult with a tax professional or CPA for advice specific to your situation.