I tried searching Google but I am not fully sure what it means.
In: Economics
Step-up basis is specific to inheriting investments like stocks that may have changed in value (normally increased) since they were originally bought.
A basic example would be – Your father bought shares of ABC Company at $10 a share thirty years ago. The shares have gained in value over that time and now the stock trades at $100 a share. If your father sold them he would be liable to pay taxes on the $90 profit he made per share. That is how capital gains tax works
However, your father passes away and the shares are passed to you. You didn’t buy the shares, so the question is what is their value?
In the step-up basis the count is “reset” so the shares are now worth whatever they are today and that is their new starting point. So in our example you own the shares at $100 a share and will be liable for capital gains tax if you sell it for more than that. However, you are NOT liable for the gains that happened when your father owned the shares. You could sell them immediately and not take a significant tax bill.
The cost basis of your investment has “stepped up” to the current value.
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