District of Columbia Step-Up in Basis

When you inherit property in the District of Columbia, your tax basis usually resets to the fair market value on the date the owner died. That step-up wipes out the gain that built up during the owner's life, so you pay capital gains tax only on growth after the death. The rule is federal (Internal Revenue Code Section 1014), and the District follows the federal gain when it taxes a D.C. resident's income.

Two D.C. facts shape how much the rule helps. The District is not a community property jurisdiction, so a married couple's home gets a step-up on one half at the first death, not on the whole. And the District taxes a resident's gains at its ordinary income rates, which reach 10.75% (D.C. Code § 47-1806.03(a)(11)). Here is how the pieces fit, with the math.

If you are deciding whether to sell, read this next to the guide on selling inherited property. The step-up is an income tax rule. The District's own estate tax is a different tax, covered in the D.C. estate tax.

What Step-Up in Basis Means

Your basis is your cost for tax purposes, usually what you paid. When you sell, you owe capital gains tax on the sale price minus that basis.

The Problem Without a Step-Up

Say your father bought a Capitol Hill rowhouse in 1995 for $180,000. When he died in 2026, it was worth $900,000. If he had deeded it to you as a gift while he was alive, you would keep his $180,000 basis. Sell it for $900,000 and you report $720,000 of gain.

How the Step-Up Fixes It

Because you inherited the house, your basis becomes its fair market value on the date of death: $900,000. Sell for $900,000 and your gain is $0. Sell a year later for $940,000 and your gain is $40,000, not $760,000.

Where the Rule Comes From

IRS Publication 551 lists the basis of inherited property. Generally it is one of these:

The fair market value on the date of death
The fair market value on the alternate valuation date, if the personal representative elects it for the federal estate tax return
The special-use value of farm or closely held business real estate, if elected
The decedent's adjusted basis in land to the extent a qualified conservation easement kept its value out of the taxable estate

For most D.C. families, the first item is the one that applies.

Inherited property also counts as long term from day one. IRS Publication 544 says you are treated as holding inherited property longer than one year, regardless of how long you actually held it. So a quick sale still gets federal long-term rates.

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What Qualifies and What Does Not

Assets That Usually Step Up

Most capital assets a person owned at death qualify:

Houses, condos, and rental property in the District or elsewhere
Stocks, bonds, mutual funds, and ETFs in a taxable account
Business interests
Art, collectibles, and other personal property with value

The route the asset takes after death does not decide basis on its own. Property can pass through probate, a revocable trust, survivorship title, or a transfer-on-death deed, and Section 1014 still governs the heir's basis for property acquired from a decedent.

Assets That Do Not Step Up

Traditional IRAs and 401(k)s. These hold income in respect of a decedent. IRS Publication 559 says a distribution from deducted contributions or earnings in a traditional IRA is fully taxable income to the heir.
Lifetime gifts. A gift keeps the giver's basis. The step-up applies to property received from a decedent.
Property you gave the decedent within a year of death. IRS Publication 551 says if you or your spouse gave appreciated property to the decedent within one year before the death, your basis is the decedent's adjusted basis, not the date-of-death value.

How Joint Ownership Works in D.C.

The District Is Not a Community Property Jurisdiction

IRS Publication 551 names nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In those states, the whole community property, including the survivor's half, generally steps up at the first death. The District of Columbia is not on that list, so D.C. couples do not get that double step-up.

Spouses Who Own as Tenants by the Entirety

D.C. law lets a deed to spouses or domestic partners create a tenancy by the entirety (D.C. Code § 42-516(c)). Watch the wording, though. A deed to two or more people, spouses included, makes a tenancy in common unless it expressly says joint tenancy (D.C. Code § 42-516(a)).

For a married couple holding as tenants by the entirety, or as the only two joint tenants with survivorship, the IRS calls the property a qualified joint interest. Half its value goes into the first spouse's estate, no matter who paid for it. IRS Publication 551 says the survivor's basis is the cost of their own half, adjusted, plus the basis of the half they inherited.

Here is how that plays out for a D.C. couple whose home cost $300,000 and is worth $1,000,000 when the first spouse dies:

Half	Original Basis	Value at Death	Basis After Death
Decedent's half	$150,000	$500,000	$500,000 (stepped up)
Survivor's half	$150,000	$500,000	$150,000 (unchanged)
Total	$300,000	$1,000,000	$650,000

If the survivor sells for $1,000,000, the gain is $350,000 before any home-sale exclusion the survivor qualifies for. The survivor's half steps up later, at the survivor's own death.

Domestic Partners and Other Co-Owners

D.C. domestic partners can hold a tenancy by the entirety, but federal tax law does not treat them as married. IRS Publication 555 says registered domestic partners are not married for federal tax purposes, and Publication 551's qualified joint interest rule covers married individuals. For other surviving joint tenants, Publication 551's example ties the stepped-up share to the part of the value included in the decedent's estate, which turns on who paid for the property. Partners, siblings, and parents with children on title should map this out with a tax professional before a sale.

How the District Taxes the Gain You Do Have

The District starts from the federal numbers. Under D.C. Code § 47-1803.02(a), "gross income" for District purposes has the same meaning as in Section 61 of the Internal Revenue Code, with a list of District additions and subtractions. Adjusted gross income for an individual follows Section 62 (D.C. Code § 47-1803.02(b)). So the gain a D.C. resident reports federally, figured with the stepped-up basis, carries into the D.C. return.

The District then taxes a resident's taxable income at its regular rates. For tax years beginning after December 31, 2021, the table in D.C. Code § 47-1806.03(a)(11) runs:

Taxable Income	D.C. Tax
Not over $10,000	4%
$10,000 to $40,000	$400 plus 6% of the excess over $10,000
$40,000 to $60,000	$2,200 plus 6.5% of the excess over $40,000
$60,000 to $250,000	$3,500 plus 8.5% of the excess over $60,000
$250,000 to $500,000	$19,650 plus 9.25% of the excess over $250,000
$500,000 to $1,000,000	$42,775 plus 9.75% of the excess over $500,000
Over $1,000,000	$91,525 plus 10.75% of the excess over $1,000,000

That section sets no lower rate for long-term gains, so a gain lands in the same table as wages. Here is why the step-up matters even more in D.C.: every dollar of gain it erases is a dollar the District would otherwise tax at up to 10.75%, on top of the federal tax.

Two limits on what this guide covers. These rates apply to D.C. residents; an heir who lives in Maryland or Virginia files under that state's rules. And when the estate itself sells an asset, the personal representative reports the gain on the estate's fiduciary return, which follows its own rules.

Basis Is Not the Estate Tax

People mix these up. The estate tax asks whether the estate owes tax at death. Basis decides what an heir owes in income tax on a later sale. The District has its own estate tax for larger estates, and the federal estate tax sits above it. See estate tax vs income tax for the District's thresholds and deadlines. The D.C. estate tax calculator checks an estate against both lines.

The two connect in one place. When an estate must file a federal estate tax return (Form 706), IRS Publication 551 says beneficiaries generally receive a Schedule A (Form 8971) reporting the estate tax value of what they received, and certain beneficiaries must use that value as their starting basis. Keep that schedule with your records.

Next Steps for D.C. Heirs

Get a Date-of-Death Value Now

The step-up is only as good as the proof behind it. Order a date-of-death appraisal for real estate soon after the death, even if you plan to keep the property for years. Ask each brokerage for statements showing values on the date of death.

Keep the Records That Prove Your Basis

Keep the appraisal, the brokerage statements, any Schedule A (Form 8971), the estate inventory, and receipts for improvements you make after you inherit. You will need them when you sell, and the IRS can question a basis you cannot support.

Think Before Gifting Appreciated Property

A parent who gives an appreciated house to a child during life passes along the low basis. Keeping it until death lets the heir take the stepped-up value. If you are planning ahead, the D.C. revocable living trust guide and how to avoid probate in D.C. cover ways to skip probate while the property still passes at death.

Frequently Asked Questions

Does the District of Columbia give a double step-up in basis?

No. The IRS lists nine community property states, and the District of Columbia is not one of them. When a married D.C. couple owns a home as tenants by the entirety, the IRS treats it as a qualified joint interest: half the value goes into the first spouse's estate, so only that half steps up. The survivor's half keeps its original cost.

Does D.C. tax the gain when I sell inherited property?

Yes, if you are a D.C. resident. District gross income has the same meaning as federal gross income under IRC Section 61 (D.C. Code § 47-1803.02(a)), so a taxable gain on your federal return flows into your D.C. return. The resident rate table for tax years after 2021 runs from 4% to 10.75% above $1,000,000 of taxable income, and it sets no separate rate for long-term gains (D.C. Code § 47-1806.03(a)(11)). The step-up shrinks the gain both returns tax.

Do I have to hold inherited property for a year to get long-term treatment?

No. IRS Publication 544 says that if you inherit property, you are treated as holding it longer than one year, regardless of how long you actually held it. A sale a month after the death still counts as long term on your federal return.

Do retirement accounts get a step-up?

No. Money inside a traditional IRA or 401(k) is income in respect of a decedent. IRS Publication 559 says a distribution from deducted contributions or earnings in a traditional IRA is fully taxable income to the person who inherits it.

What if the property was a gift before death?

A lifetime gift keeps the giver's basis, which IRS Publication 551 explains under property received as a gift. The step-up applies to property you receive from a decedent. And if you gave appreciated property to the decedent within one year before the death and it comes back to you, you take the decedent's old basis instead of the date-of-death value.

Does the D.C. estate tax change my basis?

The D.C. estate tax is a separate tax on the estate. Your basis comes from the federal rule. If the estate had to file a federal Form 706, the personal representative may send you a Schedule A (Form 8971), and IRS Publication 551 says certain beneficiaries must use that reported estate tax value as their starting basis.

This guide is general information about inherited property and taxes in the District of Columbia. It is not legal advice. Tax rules change, so confirm anything that affects a sale with a CPA or a licensed D.C. attorney.

Sources:

Title: Publication 551 (12/2025), Basis of Assets. Publisher: Internal Revenue Service. Publication Date: December 2025. URL: https://www.irs.gov/publications/p551
Title: Publication 544 (2025), Sales and Other Dispositions of Assets. Publisher: Internal Revenue Service. Publication Date: 2025. URL: https://www.irs.gov/publications/p544
Title: Publication 559 (2025), Survivors, Executors, and Administrators. Publisher: Internal Revenue Service. Publication Date: 2025. URL: https://www.irs.gov/publications/p559
Title: Publication 555 (12/2024), Community Property. Publisher: Internal Revenue Service. Publication Date: December 2024. URL: https://www.irs.gov/publications/p555
Title: D.C. Code § 47-1803.02, Gross income, Items included and excluded; adjusted gross income defined. Publisher: Council of the District of Columbia. Publication Date: Not listed. URL: https://code.dccouncil.gov/us/dc/council/code/sections/47-1803.02
Title: D.C. Code § 47-1806.03, Tax on residents and nonresidents, Imposition and rates. Publisher: Council of the District of Columbia. Publication Date: Not listed. URL: https://code.dccouncil.gov/us/dc/council/code/sections/47-1806.03
Title: D.C. Code § 42-516, Tenancies in common, tenancies by the entireties, and joint tenancies. Publisher: Council of the District of Columbia. Publication Date: Not listed. URL: https://code.dccouncil.gov/us/dc/council/code/sections/42-516

It is not legal advice.