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Connecticut Step-Up in Basis Explained
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Connecticut Step-Up in Basis Explained

Connecticut step-up in basis: how IRC Section 1014 resets inherited property to date-of-death value, and where the Probate Court file proves your number.

By Settled Editorial

When you inherit property in Connecticut, its cost basis resets to the fair market value on the owner's date of death. That step-up under Internal Revenue Code Section 1014 erases the capital gains tax on a lifetime of appreciation. You owe tax only on growth after the death, and only when you sell.

The reset itself is federal law. What Connecticut supplies is the evidence and the rate you pay later. Two Connecticut documents record your number, both of them filed with the Probate Court for the district where the decedent lived, and the state then taxes your gain at ordinary income rates instead of a special capital gains rate. Here is how the basis gets set, how the gain gets figured, and where the Connecticut estate tax fits.

What Step-Up in Basis Means

Basis is what the tax system treats as your cost in an asset. When you sell, you owe capital gains tax on the sale price minus that basis. The step-up changes the starting number for property you inherit.

The problem a step-up solves

Say your mother bought a colonial in Manchester in 1994 for $118,000. At her death in 2026 it is worth $465,000. If she had deeded it to you as a gift while she was alive, you would take her $118,000 cost, called a carryover basis, and a sale at $465,000 would show a $347,000 gain.

How the reset works

Because you inherited the house instead, your basis steps up to the $465,000 date-of-death value. Sell at $465,000 and your gain is $0. Sell a year later for $488,000 and you report a $23,000 gain rather than $370,000.

Where the rule comes from

Two layers meet here. Federal law sets the number: IRC Section 1014(a)(1) gives property acquired from a decedent a basis equal to its fair market value at the date of the decedent's death. Connecticut law then decides who holds the property while the estate settles and who records the transfer. Under Conn. Gen. Stat. § 45a-321(a), the fiduciary has possession, care and control of the decedent's real property during settlement unless the will names that property as a specific devise or directs otherwise. Heirs cannot list the house on their own until the court orders the property surrendered or distributed.

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How Step-Up Works for Connecticut Inherited Property

What qualifies

Most capital assets you inherit take a stepped-up basis:

  • Real estate, including homes, land, and rental or commercial property
  • Stocks, bonds, mutual funds, and ETFs
  • An interest in a family business
  • Vehicles, art, jewelry, and other high-value personal property

What does not qualify

Three categories sit outside the rule:

  • Retirement accounts. Traditional IRAs, 401(k)s, and similar tax-deferred accounts are income in respect of a decedent. IRC Section 1014(c) shuts the step-up off for them, so heirs pay ordinary income tax on withdrawals and the account keeps no reset basis.
  • Property gifted before death. A lifetime gift carries the giver's cost to you, so a gift receives no step-up.
  • Assets returned within a year. If you gave appreciated property to someone, they died within one year, and it came back to you or your spouse, IRC Section 1014(e) hands you the decedent's adjusted basis instead.

Connecticut is a separate-property state with one live exception

Connecticut follows common-law, separate-property rules. On a house held as joint tenants with right of survivorship under Conn. Gen. Stat. § 47-14a, only the deceased spouse's half steps up at the first death. The survivor keeps the original cost on their own half.

The exception matters to anyone who moved here from Arizona, California, Texas, Washington or another community property state. Connecticut adopted the Uniform Disposition of Community Property Rights at Death Act at Conn. Gen. Stat. §§ 45a-458 to 45a-466. Under § 45a-459 the act reaches personal property that was community property under another state's law, along with Connecticut real property bought with community funds or traceable to them. Section 45a-461 then gives half of that property to the surviving spouse outright, outside the will and outside intestacy, and leaves half in the decedent's estate.

That preserved character is what IRC Section 1014(b)(6) looks for when it lets the surviving spouse's half step up along with the decedent's half. Whether a specific asset still meets the federal test after a move is a question for a CPA. Ask early, because Conn. Gen. Stat. § 45a-462 says neither the fiduciary nor the Probate Court has any duty to go looking for community property unless the surviving spouse makes a written demand. Make that demand in writing while the estate is open.

Figuring Your New Basis in Connecticut

Step 1: Pull the date-of-death value from the court file

Connecticut records your number twice, and both records land in the Probate Court file.

The first is the inventory. Conn. Gen. Stat. § 45a-341(a)(1) makes the fiduciary produce an inventory of all the property of the deceased person, appraised and signed under penalty of false statement. Section 45a-341(a)(4) makes the fiduciary appraise that property at fair market value, and § 45a-341(b)(1) makes the fiduciary file it with the Probate Court that has jurisdiction of the estate within two months after the court accepts the bond or the fiduciary otherwise qualifies. Section 45a-341(b)(2) lets the court stretch that to four months for cause. Ask the court for a copy of the inventory and save it.

The second is the estate tax return, and Connecticut is unusual in requiring one from every estate. Conn. Gen. Stat. § 12-392(b)(3)(J) makes a return due for every decedent dying on or after January 1, 2023 who lived in Connecticut, plus every nonresident whose gross estate holds Connecticut real property or tangible personal property here. An estate at or below the exclusion files Form CT-706 NT with the Probate Court alone and never with the Department of Revenue Services. An estate above it files Form CT-706/709 with the Department and a copy with the court. Both versions carry a date-of-death asset schedule, so both are basis evidence.

Those same values do double duty. Conn. Gen. Stat. § 45a-107(b)(1) computes the Probate Court fee on the greatest of four measures, one of which is the inventory itself, so a sloppy appraisal moves the fee and your basis at once. Get it right the first time.

How you support each figure depends on the asset:

  • Real estate: order a date-of-death appraisal from a licensed appraiser while the trail is warm.
  • Publicly traded stock: average the high and low trading price on the date of death. If that day fell on a weekend or holiday, the federal rule takes a weighted average of the means on the nearest trading dates before and after, weighted inversely by how many trading days each sits from the date of death.
  • A closely held business: get a professional valuation.

Step 2: Check the alternate valuation date

An executor who files a federal estate tax return can elect the alternate valuation date under IRC Section 2032, which values the estate six months after death. It never raises basis. Section 2032(c) bars the election unless it decreases both the value of the gross estate and the estate tax, so it only moves values down, and Section 2032(d)(1) says the executor makes it on the federal return. The IRS puts the federal filing threshold at $15,000,000 for a 2026 death, so almost no Connecticut estate files a Form 706 and most heirs use the date-of-death value.

Step 3: Add what you put in

Capital improvements you make after inheriting raise your basis: a new roof, an addition, a kitchen remodel, or site work. Keep the receipts. Routine repairs do not count, so track improvements and repairs separately.

ItemAmount
Date-of-death value (your stepped-up basis)$465,000
New roof and gutters+$17,500
Kitchen remodel+$26,000
Adjusted basis$508,500
Sale price$549,000
Capital gain you report$40,500

Step-Up by Asset Type

Real estate

Connecticut has no transfer-on-death deed for real property, so an inherited house here arrives through probate, a revocable living trust, a life estate deed, or joint tenancy with survivorship. Every one of those paths steps up the decedent's interest.

Two Connecticut recordings build the chain of title, and both run through the town clerk, since Connecticut has no county recorder. Conn. Gen. Stat. § 45a-322(a) makes the fiduciary lodge a certificate of the death with the town clerk of each town where the decedent owned real property, within two months after qualifying. Conn. Gen. Stat. § 45a-450(a) then makes the fiduciary obtain a certificate from the judge or clerk naming each person who takes the property and describing the interest, and record it in the land records of each town, within one month after the distribution or after the court accepts the final administration account.

One Connecticut wrinkle stalls closings rather than basis. Conn. Gen. Stat. § 12-398(d) puts a lien in favor of the state on the real property transferred, running from the due date of the estate tax until the tax is paid, with no fixed term. It binds a lienor, mortgagee, judgment creditor or bona fide purchaser only once notice is recorded, which is exactly what a title search turns up. Section 12-398(e)(1) says the Probate Court issues the certificate of release when it finds no tax is due or payment is assured, unless the estate had to file with the Commissioner of Revenue Services, in which case the Commissioner issues it. Section 12-398(e)(2) has that certificate recorded with the town clerk of the town where the land sits. Form CT-4422 UGE is the application. Start it early, and read selling the inherited house for the rest of the sale mechanics.

Stocks and funds

Each holding steps up to its date-of-death value. Mutual fund shares reset to the net asset value that day, which wipes out the fund's built-in gains for you. Ask the brokerage for a date-of-death statement, which most firms produce on request. A security registered in beneficiary form under Conn. Gen. Stat. § 45a-468b passes to the beneficiary who survives the owner under § 45a-468g, and § 45a-468i(a) calls that transfer nontestamentary, so it stays out of the will. It still steps up.

A family business

An inherited interest in a partnership, LLC, or S corporation steps up at the owner level. A partnership or LLC can make a Section 754 election to adjust the inside basis of its assets to match. S corporation stock steps up while the corporation's own asset basis stays put. A CPA can map the entity details.

Collectibles and personal property

Vehicles, antiques, jewelry, and coin collections step up to date-of-death value like anything else. The later rate differs: the IRS taxes net long-term gain on collectibles such as coins or art at a maximum 28 percent rather than the usual 20 percent ceiling. Get an appraisal on anything worth real money so the stepped-up number holds up.

Capital Gains Tax After a Connecticut Inheritance

Inherited property counts as long-term no matter how briefly you or the decedent held it. IRC Section 1223(9) says so directly: sell within one year of the death and you are still treated as having held it for more than one year.

Federal long-term rates run 0 percent, 15 percent, and 20 percent depending on your taxable income, and the bracket thresholds move every year, so check the current figures with the IRS before you file. Two federal add-ons reach inherited real estate. A 3.8 percent net investment income tax can apply once modified adjusted gross income passes $200,000 for a single filer or $250,000 for a married couple filing jointly. And if you rent the property out after inheriting it, the depreciation you claim from that point forward comes back at sale as unrecaptured Section 1250 gain, taxed at a maximum 25 percent. The decedent's own depreciation history does not follow the property, because the step-up wipes it out along with the old cost.

Connecticut charges no separate capital gains rate. Conn. Gen. Stat. § 12-701(a)(19) defines adjusted gross income as the amount determined for federal purposes and properly reported on your federal return, and § 12-701(a)(20) applies a short list of Connecticut modifications on top. The gain lands in Connecticut adjusted gross income and Conn. Gen. Stat. § 12-700(a)(10) taxes it on the ordinary graduated schedule. For a single filer that schedule runs 2.0 percent on the first $10,000 of Connecticut taxable income, 4.5 percent, 5.5 percent, 6.0 percent, 6.5 percent, 6.9 percent, and 6.99 percent above $500,000. A married couple filing jointly hits the 6.99 percent bracket above $1,000,000.

Three Connecticut mechanics turn one large sale into a bigger bill than the bracket table suggests:

  • The 2 percent band shrinks. Under § 12-700(a)(10)(A)(ii) a single filer whose Connecticut adjusted gross income tops $56,500 loses $1,000 of the 2 percent band for every $5,000 above that line, and the lost amount moves to the 4.5 percent rate. Subparagraph (C)(ii) does the same to joint filers above $100,500.
  • Benefit recapture stacks on top. Subparagraphs (A)(iii) through (A)(v) add flat dollar amounts once a single filer's Connecticut adjusted gross income passes $105,000, $200,000 and $500,000, up to $250, $2,700 and $450. Subparagraphs (C)(iii) through (C)(v) run the joint-filer version at $210,000, $400,000 and $1,000,000.
  • An estate or trust pays the top rate flat. Section 12-700(a)(10)(E) sets the rate for trusts and estates at 6.99 percent of Connecticut taxable income, with no graduated bands at all. If the estate sells the house and retains the gain instead of distributing it, Connecticut takes 6.99 percent from the first dollar. Compare that against distributing the property first and letting the beneficiaries sell.

Selling costs such as broker commission and closing fees reduce the gain, and you report the same gain to Connecticut that you report federally.

Connecticut Estate Tax Is Separate From Basis

These two taxes answer different questions, and mixing them up is what sends most people looking for this page.

The step-up sets the basis an heir uses to figure capital gains on a later sale. The Connecticut estate tax is a one-time tax the estate itself may owe before assets pass, and Connecticut is one of the minority of states that still charges one. Conn. Gen. Stat. § 12-391(g)(9) charges nothing on a Connecticut taxable estate at or below the federal exclusion amount and 12 percent of the excess above it, with no graduated table. The Department of Revenue Services puts that exclusion at $15 million for a decedent dying during 2026, matching the federal figure. Connecticut charges no inheritance tax, so a beneficiary owes the state nothing for receiving property.

Filing and owing are different tests. Under Conn. Gen. Stat. § 12-392(b)(3)(J) every qualifying estate files something, even when the tax is zero, which is why the Form CT-706 NT lane exists at the Probate Court. The judge reviews each return filed with the court and issues a written opinion when the estate is not subject to the tax, and that opinion is worth keeping with your basis records. Conn. Gen. Stat. § 12-392(a)(1) makes any tax payable six months after the date of death for decedents dying on or after July 1, 2009. For the full comparison of who files what and when, read the Connecticut estate tax.

Ways to Protect the Step-Up

  • Hold appreciated assets for life. Selling a long-held, low-cost asset before death triggers a gain the step-up would have erased for your heirs.
  • Avoid gifting appreciated property. A lifetime gift passes your low cost along. Letting the asset pass at death gives the full reset.
  • Use a trust to skip probate, not to transfer during life. Assets in a revocable living trust step up the same way probate assets do, so you avoid the court process without losing the reset. Deeding the house to the children now does not.
  • Write the values down at the time of death. Appraisals and brokerage statements are far easier to obtain in month one than in year seven.
  • Make the community property demand in writing. If a spouse moved here from a community property state, § 45a-462 puts the burden on the surviving spouse to ask.

Records to Keep

Save these so you can support your basis if the IRS or the Department of Revenue Services asks:

  • The § 45a-341 inventory from the Probate Court file
  • Form CT-706 NT or Form CT-706/709, plus the judge's written opinion if the estate owed no tax
  • Date-of-death appraisals for real estate and high-value items
  • Brokerage statements showing date-of-death values
  • The § 45a-450 certificate recorded in the town land records
  • Receipts for capital improvements you make
  • The closing statement and selling-expense records from the sale

Keep them at least three years after you file the return that reports the sale. Longer is safer.

For the wider picture of what a fiduciary has to do and when, start with the Connecticut probate guide and the inventory that records the values. To confirm which of the 54 probate districts holds the file you need, use the Connecticut Probate Court directory. If there was no will, Connecticut intestate succession decides who takes the property whose basis just reset.

Frequently Asked Questions

Is the step-up in basis a Connecticut rule?

No. The step-up is federal. IRC Section 1014(a)(1) gives property acquired from a decedent a basis equal to its fair market value at the date of death, and it works the same way in all fifty states. Connecticut adds the paper trail. Conn. Gen. Stat. § 45a-341 makes the fiduciary file an inventory with the Probate Court, appraised at fair market value, and Conn. Gen. Stat. § 12-392 makes every estate file an estate tax return (screen the estate against the exemption with the Connecticut estate tax calculator) that lists the same date-of-death values.

Where do I find the date-of-death value years later?

Ask the Probate Court for the district that settled the estate. Two documents hold the numbers. Conn. Gen. Stat. § 45a-341(b)(1) makes the fiduciary file an inventory with the court within two months after the bond is accepted or the fiduciary otherwise qualifies, and § 45a-341(a)(4) makes the fiduciary appraise every item at fair market value. Form CT-706 NT, the estate tax return for nontaxable estates, is filed with that same court and carries its own date-of-death asset schedule. Connecticut keeps both in the court file rather than leaving them with the family.

Does Connecticut tax the gain on an inherited house at a special rate?

No. Connecticut has no separate capital gains rate. Conn. Gen. Stat. § 12-701(a)(19) starts Connecticut adjusted gross income from the adjusted gross income you report on your federal return, so the gain flows straight through, and § 12-700(a)(10) taxes it on the ordinary graduated scale that runs from 2.0 percent to 6.99 percent. Watch one trap. Under § 12-700(a)(10)(E) a trust or estate pays a flat 6.99 percent, so an estate that sells the house and keeps the gain pays the top rate on the first dollar.

Does Connecticut tax me for inheriting property?

No. Connecticut charges no inheritance tax, so a beneficiary owes the state nothing for receiving property. The estate itself may owe Connecticut estate tax. Conn. Gen. Stat. § 12-391(g)(9) charges nothing on a Connecticut taxable estate at or below the federal exclusion amount and 12 percent of the excess above it. The Department of Revenue Services puts that exclusion at $15 million for a 2026 death.

Does the step-up apply if the estate skips probate?

Yes. IRC Section 1014(b) reaches property acquired from a decedent no matter how it passes, including through a revocable trust, joint tenancy with survivorship under Conn. Gen. Stat. § 47-14a, a beneficiary designation, or a security registered in transfer-on-death form under Conn. Gen. Stat. § 45a-468b. Probate is not what triggers the reset. Skipping probate does cost you the court-filed inventory, so order your own date-of-death appraisal instead.

Why is the closing on my inherited Connecticut house held up?

Almost always the estate tax lien. Conn. Gen. Stat. § 12-398(d) puts a lien on transferred real property from the due date of the tax until it is paid, with no fixed expiration. Section 12-398(e)(1) says the Probate Court issues the certificate of release unless the estate had to file with the Commissioner of Revenue Services, in which case the Commissioner issues it, and § 12-398(e)(2) has the certificate recorded with the town clerk where the land sits. Form CT-4422 UGE is the application. Start that request before you sign a purchase and sale agreement.

This guide is general information about Connecticut estates, not advice for your situation.

Sources:

It is not legal advice.

Information current as of August 1, 2026

Settled Estate is not a law firm, and this content is for informational purposes only and does not constitute legal advice. Probate laws and procedures in Connecticut can change. Consult with a qualified attorney for advice specific to your situation. Full disclaimer.

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