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November 10, 2026

When someone who owns commercial real estate passes away, the value on that date becomes one of the most important numbers in the estate.

The basic rule

Under Section 1014 of the Internal Revenue Code, the tax basis of property acquired from a decedent is generally its fair market value on the date of death. Basis is the starting figure used to calculate gain or loss when property is sold. This reset is often called a step-up in basis. It does not depend on the estate actually owing estate tax. taxconnectionsreedcorp

It can also work in reverse. If a property has lost value, the same rule can produce a step-down. reedcorp

Why real estate needs an appraisal

A publicly traded stock has a closing price on any date. Real estate and other hard-to-value assets generally require an appraisal. Treasury regulations treat the value appraised for federal estate tax purposes as the property’s fair market value. reedcorpezel

Points worth knowing

  1. Alternate valuation date: Section 2032 gives executors an option to value the estate six months after the date of death. simplytrust
  2. Texas community property: Texas is one of nine community property states where both halves of community property generally receive a full step-up at the first spouse’s death. policyrisk
  3. Appraisals can be done later: one legal commentary notes that a retrospective appraisal can establish value as of the date of death even if prepared afterward, and it should reflect market evidence and property condition on that date rather than a current listing price. daeryunlaw
  4. Deathbed gifts: Section 1014(e) denies the step-up for appreciated property gifted within one year before death and reacquired from the decedent by the donor. cobar

This post is for informational purposes only and is not tax or legal advice.

Sources: Taxconnections, “Stepped Up Basis in Estate Planning IRC 1014” (https://taxconnections.com/taxblog/stepped-up-basis-in-estate-planning-irc-1014); Reed Corp, “Step Up in Basis at Death” (https://reedcorp.tax/helpful-guides/step-up-in-basis-explained/) and “Inherited Property Tax Basis” (https://reedcorp.tax/helpful-guides/inherited-property-tax-basis/); IRS TAM 9933001 via Ezel (https://ezel.ai/irs-rulings/9933001); SimplyTrust (https://simplytrust.com/tools/step-up-basis-calculator/tennessee/); PolicyRisk (https://policyrisk.com/wiki/step-up-in-basis); Daeryun Law (https://www.daeryunlaw.com/us/insights/capital-gains-tax-on-inherited-house-in-ny); Colorado Bar Association (https://www.cobar.org/Portals/COBAR/Repository/Sections/TE/newsletter/Step%20Up%20In%20Basis.pdf).