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Wisconsin Step-Up in Basis: Marital Property Double Step-Up
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Wisconsin Step-Up in Basis: Marital Property Double Step-Up

Wisconsin is a marital property state, so both halves step up in basis at the first spouse's death. See how the double step-up cuts capital gains tax.

By Settled Editorial

Wisconsin is the only state that uses a marital property system instead of the community property label, and that difference creates one of the largest tax advantages in estate planning: the double step-up in basis. When the first spouse dies, both halves of the couple's marital property can adjust to full market value, which can erase capital gains tax on decades of appreciation.

Knowing how the step-up works helps you decide how to hold and title property before a death, because the chance closes once the first spouse dies.

What Is Step-Up in Basis?

When you sell property, you pay 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
  • Federal tax owed: $18,000 or more at a 20% rate, plus Wisconsin income tax

When you inherit property, your basis "steps up" to the fair market value at the date of the decedent's death. This wipes out 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 rule sits in Internal Revenue Code Section 1014(a): property acquired from a decedent takes a basis equal to its fair market value at the date of death. Inherited property is also treated as held long-term under IRC Section 1223(9), so any later gain is a long-term gain.

The Wisconsin Double Step-Up

In most states, when jointly owned property passes at death, only the decedent's share steps up. The surviving owner's share keeps its original basis. Wisconsin works differently.

Under IRC Section 1014(b)(6), 100% of community property receives a stepped-up basis when either spouse dies, including the surviving spouse's half. This is the "double step-up." The rule reaches community property and property that a state's marital property system treats as community property. The IRS treats Wisconsin marital property as community property for this purpose, so both halves of marital property step up at the first death.

Marital Property, Not Community Property

Wisconsin does not use the phrase "community property." It uses "marital property" under the Wisconsin Marital Property Act, Wis. Stat. Chapter 766. Under Wis. Stat. Section 766.31, most property that a married couple acquires during the marriage is marital property, and each spouse owns a present undivided one-half interest in each item of it.

The naming difference is the point families get wrong. The label is "marital property," but the federal double step-up still applies, because the IRS treats Wisconsin marital property the same as community property for basis purposes. So a Wisconsin couple gets the same first-death, full-basis step-up that a California or Texas couple gets, even though the state statute never says "community property."

The Tax Savings

ScenarioOriginal BasisValue at DeathStepped-Up BasisGain if Sold
Separate-property state (joint tenancy)$150,000$650,000$400,000$250,000
Wisconsin (marital property)$150,000$650,000$650,000$0

In this example, the Wisconsin family avoids tax on a $250,000 gain by getting the double step-up on both halves of the marital property.

Detailed Example

Dave and Karen, Wisconsin residents, bought a home in 1995 for $150,000 using their wages during the marriage, so it is marital property. By 2026 it is worth $650,000. Dave dies first.

In a Separate-Property State

If the home were held as joint tenants in a separate-property state, only Dave's half would step up:

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

If Karen sells for $650,000:

  • Capital gain: $250,000
  • Federal tax at 15%: $37,500
  • Wisconsin income tax: Wisconsin taxes the taxable portion of the long-term gain (about $175,000 after the partial long-term exclusion) at rates up to 7.65% for 2026, which adds up to roughly $13,400
  • Total tax: up to about $50,900

In Wisconsin

Because the home is marital property, both halves step up:

  • Karen's half: steps up to $325,000
  • Dave's half: steps up to $325,000
  • Total basis: $650,000

If Karen sells for $650,000:

  • Capital gain: $0
  • Federal tax: $0
  • Wisconsin income tax: $0
  • Total tax: $0

Tax avoided: up to about $50,900

Which Property Qualifies

Marital Property

Property acquired during the marriage with marital funds (wages, salary, business income earned during the marriage) is marital property and qualifies for the double step-up:

  • Primary residence bought during the marriage
  • Investment property bought with marital income
  • Brokerage accounts funded during the marriage
  • Business interests built during the marriage

What Does Not Qualify

Individual Property Property a spouse owned before the marriage, or received during the marriage by gift or inheritance, is individual property under Wis. Stat. Section 766.31, not marital property. Only the deceased owner's interest steps up. The surviving spouse's separately owned property keeps its original basis.

Retirement Accounts Traditional IRAs, 401(k)s, and similar accounts do not receive a step-up. They are income in respect of a decedent, so heirs pay ordinary income tax on withdrawals. The account balance does not reset to a new basis at death.

Lifetime Gifts Property given away before death does not step up. Under IRC Section 1015, a gift generally carries over the giver's original basis to the person who receives it. Holding an appreciated asset until death, rather than gifting it during life, is what unlocks the step-up.

Alternate Valuation Date

The default valuation date is the date of death. An executor can instead elect the alternate valuation date under IRC Section 2032, which values the estate six months after death. That election is only available when it lowers both the gross estate and the estate tax, so it rarely applies below the federal exemption. For most Wisconsin families, the date-of-death value sets the stepped-up basis.

Step-Up vs. Step-Down

The adjustment runs both directions. If property is worth less at death than the decedent paid, 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 deductible loss. The built-in loss disappeared at death.

Planning note: If an asset holds a built-in loss, selling it before death can capture that loss for tax purposes, rather than letting it vanish at the step-down.

Classifying Property as Marital Property

The double step-up depends on marital property character, so how a couple holds title matters. Under Wis. Stat. Section 766.31, most property acquired during the marriage is already presumed to be marital property. Spouses can also sign a marital property agreement under Wis. Stat. Section 766.58 to classify individually titled assets as marital property so they qualify for the full step-up at the first death. Wisconsin also recognizes survivorship marital property, a form of ownership under Chapter 766 that preserves marital property character.

Confirm marital property character before the first spouse's death, because after a death the chance to secure the double step-up on that property is gone. Talk with a tax professional or estate planning attorney before signing an agreement, since reclassifying property affects creditor exposure and divorce outcomes as well as taxes.

Wisconsin Income Tax on Capital Gains

Wisconsin has an individual income tax, and it taxes capital gain as part of income rather than at a separate capital-gains rate. For 2026, Wisconsin individual income tax rates run from 3.50% to 7.65% across four brackets under Wis. Stat. Section 71.06. Wisconsin also allows a partial exclusion for net long-term capital gain (a 30% exclusion, and 60% for qualifying farm assets) under Wis. Stat. Section 71.05, so only part of a long-term gain is taxed. Because the exact bracket thresholds are adjusted for inflation each year, confirm the current rates and exclusion with the Wisconsin Department of Revenue before relying on them. A full basis step-up matters here: if the basis rises to the sale price, the taxable gain is zero, so both the federal capital gains tax and the Wisconsin income tax on that sale drop to zero.

No Wisconsin Estate or Inheritance Tax

Wisconsin does not impose a state estate tax for deaths after December 31, 2007, and does not impose an inheritance tax for deaths on or after January 1, 1992 (Wisconsin Department of Revenue). The step-up is a federal income tax benefit, and Wisconsin adds no estate-level or inheritance-level tax on top of it. Only the federal estate tax can apply, and only to estates above the federal exemption of $15,000,000 per person for 2026. For nearly all Wisconsin families, the practical tax question is capital gains, not estate tax, and the double step-up is the lever that controls it. For how the federal exclusion, portability, and Wisconsin's marital property rules work together, see our guide to Wisconsin and the federal estate tax.

Records to Keep

To support the double step-up, keep documentation that shows both the marital character of the property and its value at death:

  • Marriage certificate and dates of acquisition
  • Source of funds used to buy the property (marital income)
  • Deeds and any marital property agreement
  • Date-of-death appraisal, brokerage statements, or probate inventory
  • Original purchase records, to show the appreciation the step-up erases

Frequently Asked Questions

Does Wisconsin have a double step-up in basis?

Yes. Wisconsin is a marital property state, and the IRS treats marital property as community property. Under IRC Section 1014(b)(6), both spouses' halves of marital property receive a stepped-up basis when the first spouse dies. This can eliminate capital gains tax on appreciated property.

Is Wisconsin marital property the same as community property?

Wisconsin calls it marital property under the Wisconsin Marital Property Act (Wis. Stat. Chapter 766), not community property. For federal tax basis, the IRS treats Wisconsin marital property as community property, so the double step-up under IRC Section 1014(b)(6) still applies.

Does the step-up apply to a retirement account like an IRA or 401(k)?

No. Traditional IRAs and 401(k)s are income in respect of a decedent and do not receive a basis step-up. Heirs pay ordinary income tax on withdrawals from these accounts.

Does Wisconsin have a state estate or inheritance tax?

No. Wisconsin has no estate tax for deaths after December 31, 2007, and no inheritance tax for deaths on or after January 1, 1992. Only the federal estate tax can apply, and only to very large estates.

How is a capital gain taxed in Wisconsin after a sale?

Wisconsin taxes net capital gain as individual income at rates up to 7.65% for 2026 and allows a partial exclusion for long-term gains. A full basis step-up reduces or eliminates the gain, so it lowers both federal and Wisconsin tax.

How do I show property was marital property for the step-up?

Keep the marriage certificate, acquisition dates, source-of-funds records, deeds, and any marital property agreement. These records show the marital character of the property under Wisconsin law.

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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.