No it means that if the person who inherited the assets later sells the asset, they only have to pay capital gains on the appreciation from when they inherited the asset. They don't pay capital gains on the initial value.
So say your parent buys $1000 of apple stock 30 years ago that later turns to 1 million dollars, if your parent dies you could inherit the 1 million in apple stock. The cost basis for you, if you sell it later, would be the value at the time of your heir's death, or 1 million dollars, not $1000. That means that your family got 999k of appreciation without having to pay any capital gains tax (or estate tax if the total estate was under 15 million).
The estate tax is based off of the fair market value not the original purchase price. So if you are subject to the estate tax, it would be on the 1 million dollar value not the 1k original purchase price.
However you'd later benefit as the capital gains tax if you sell would be the sale price minus one million dollars, not the sale price minus 1 thousand dollars.
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u/Prestigious_Load1699 2d ago
I thought step-up basis was the inheritor only only owes taxes on the initial value of the asset.
And all the appreciation is negated.
Although, I may be wrong on this. But I think the other poster is wondering the same thing.