What is the Stepped-Up Basis for Inherited Property in California?

The stepped-up basis is a federal tax provision that resets the cost basis of inherited or trust property to its fair market value on the date of the original owner's death. When you sell inherited property, you pay capital gains tax only on appreciation that occurred after the date of death — not on the full lifetime appreciation. For California properties that have appreciated significantly over decades, this can eliminate most or all capital gains tax on a sale completed shortly after inheritance. The stepped-up basis applies to property passing through a living trust, a probate estate, or directly as an inheritance.