09/16/2026
An investment that grew from $50,000 to $200,000 could be taxed very differently depending on whether it is sold, gifted, or inherited.
One of the most overlooked numbers in financial and estate planning is cost basis.
Cost basis is generally what you paid for an asset, adjusted for certain items. It is one of the numbers used to determine your taxable gain when that asset is eventually sold.
Consider a simple example.
Someone buys land for $50,000.
Years later, the property is worth $200,000.
If the owner sells it for $200,000, there could potentially be a $150,000 capital gain before considering adjustments, exclusions, expenses, or other applicable tax rules.
But what if the property is inherited instead?
Under current federal tax rules, the basis of inherited property is generally adjusted to its fair market value at the owner's death.
So if the property is worth $200,000 when the owner passes away:
Original cost basis: $50,000
Value at death: $200,000
Heir's basis: Generally $200,000
If the heir later sells the property for $205,000, the gain could generally be around $5,000, rather than $155,000.
Why does this matter?
Because giving an asset during your lifetime and leaving that same asset to someone at death can have very different tax consequences.
A person receiving a gift generally does not receive the same basis adjustment that can apply to inherited property.
That makes basis an important consideration when deciding what assets to gift, what assets to retain, and how property fits into an overall estate plan.
There are exceptions and special rules, and not every inherited asset receives this treatment. Retirement accounts such as traditional IRAs, for example, follow different tax rules.
Before transferring highly appreciated stock, land, or other property, consider asking:
Are we only planning who receives the asset, or also how they receive it?
Source: https://www.fidelity.com/learning-center/personal-finance/what-is-step-up-in-basis
