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Maine Step-Up in Basis Explained
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Maine Step-Up in Basis Explained

Maine step-up in basis on inherited property: how IRC Section 1014 resets basis to date-of-death value, how capital gain is figured, and where Maine tax fits.

By Settled Editorial

When you inherit property in Maine, 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 wipes out the capital gains tax on a lifetime of appreciation, so you owe tax only on the growth after the death, and only when you sell.

Maine adds no inheritance tax and no separate capital gains rate, so the federal step-up does most of the work for heirs here. This guide shows how the reset works, how to figure your new basis, and how the numbers flow when you sell inherited property in Maine.

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 father bought a house in Portland in 1988 for $70,000. At his death in 2026 it is worth $360,000. If he had signed the deed over to you as a gift while he was alive, you would take his $70,000 cost, called a carryover basis, and a sale at $360,000 would show a $290,000 gain.

How the reset works

Because you inherited the house instead, your basis steps up to the $360,000 date-of-death value. Sell at $360,000 and your gain is $0. Sell a year later for $378,000 and you report an $18,000 gain rather than $308,000.

Where the rule comes from

Two layers meet here. Federal law sets the basis: IRC Section 1014 gives property acquired from a decedent a basis equal to its fair market value at the date of death. Maine law sets the moment of transfer: under 18-C M.R.S. Section 3-101, a decedent's real and personal property passes to the heirs or devisees at death, which fixes the valuation date the federal rule uses. The step-up reaches property that passes through Maine probate, a revocable living trust, a transfer-on-death deed, joint ownership with survivorship (the decedent's share only), or a beneficiary designation.

How Step-Up Works for Maine 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

A few assets sit outside the rule:

  • Retirement accounts. Traditional IRAs, 401(k)s, and similar tax-deferred accounts are income in respect of a decedent. Heirs pay ordinary income tax on withdrawals, and the account gets no basis reset.
  • Property gifted before death. A lifetime gift carries the giver's basis 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, IRC Section 1014(e) denies the step-up.

Maine is a common-law property state

Maine follows common-law, separate-property rules, not community property. For a married couple who own an asset jointly, only the deceased spouse's share steps up at the first death. The surviving spouse keeps the original basis on their own half. Couples in community property states can step up the whole asset at the first death, but that treatment does not reach Maine.

Figuring Your New Basis in Maine

Step 1: Set the date-of-death value

The fair market value on the date of death becomes your basis. How you prove it depends on the asset:

  • Real estate: order a date-of-death appraisal from a licensed appraiser. The personal representative often already has one for the estate inventory due within three months of appointment under 18-C M.R.S. Section 3-706.
  • Publicly traded stock: average the high and low trading price on the date of death. If that day was a weekend or holiday, average the trading days on either side.
  • A closely held business: get a professional valuation.

Step 2: Check the alternate valuation date

An executor who files a federal estate tax return (Form 706) can elect the alternate valuation date under IRC Section 2032, which values the estate six months after death. That election exists only when a 706 is filed. With the federal exemption at $15,000,000 for 2026 deaths, almost no Maine estate files one, so most heirs simply 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 land work. Keep the receipts. Routine repairs do not count, so track improvements and repairs separately.

ItemAmount
Date-of-death value (your stepped-up basis)$360,000
New heating system you installed+$14,000
Bathroom remodel+$21,000
Adjusted basis$395,000
Sale price$430,000
Capital gain you report$35,000

Step-Up by Asset Type

Real estate

Inherited Maine real estate can reach you through probate, a revocable living trust, a transfer-on-death deed (Maine adopted the Uniform Real Property Transfer on Death Act in 2019), or a survivorship deed. Each path gives the decedent's interest a step-up. On a survivorship deed held with a surviving co-owner, only the deceased owner's share resets. Record the new deed with the county Registry of Deeds, a separate office from the Register of Probate.

Stocks and funds

Each holding steps up to its date-of-death value. Mutual fund shares reset to the net asset value that day, erasing the fund's built-in gains for you. Ask the brokerage for a date-of-death statement, which most firms produce on request.

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, but the corporation's asset basis stays put. A CPA can map the entity details.

Personal property

Vehicles, antiques, jewelry, and collectibles step up to date-of-death value. Get appraisals for high-value items so you can support the figure later.

Capital Gains Tax After a Maine Inheritance

Inherited property is always treated as long-term, no matter how briefly you or the decedent held it (IRC Section 1223). The lower long-term rates apply even if you sell the week you inherit.

Federal long-term capital gains fall into three brackets, 0%, 15%, and 20%, based on your taxable income for the year, and the income thresholds move every year. A separate 3.8% 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. Check the current-year figures with the IRS before you file.

Maine sets no separate capital gains rate. It taxes the gain as ordinary income at its graduated rates, which run from roughly 5.8% to 7.15% for 2026, with brackets that index each year. You report the same gain to Maine that you report federally, since the Maine return starts from your federal income. Selling costs such as broker commission and closing fees reduce the gain.

Maine Estate Tax Is Separate From Basis

Do not confuse the income-tax basis with estate tax. They answer different questions.

The step-up sets the basis an heir uses to figure capital gains on a later sale. The Maine estate tax is a one-time tax the estate itself may owe before assets pass. Maine is one of the few states that keeps its own estate tax. For 2026 deaths, an estate owes Maine estate tax only on the amount above a $7,160,000 exclusion (36 M.R.S. Section 4102), reported on Form 706ME, separate from any federal filing. Maine charges no inheritance tax, so a beneficiary owes nothing to the state simply for inheriting. To check whether the estate could owe Maine or federal estate tax, run the numbers in the Maine estate tax calculator. For how the estate-level tax works, see the Maine estate tax guide.

Ways to Protect the Step-Up

  • Hold appreciated assets for life. Selling a long-held, low-basis asset before death triggers a gain that the step-up would have erased for your heirs.
  • Avoid gifting appreciated property. A lifetime gift passes your low basis along, while letting the asset pass at death gives the full reset.
  • Use a revocable living trust for probate avoidance. Assets in a revocable trust step up the same way probate assets do, so you skip probate without losing the reset.
  • Write down the date-of-death values. Appraisals and brokerage statements gathered at the time of death are far easier to get then than years later.

Records to Keep

Hold on to these to support your basis if the IRS or Maine Revenue Services ever asks:

  • Date-of-death appraisals for real estate and high-value items
  • Brokerage statements showing date-of-death values
  • The estate inventory filed in probate
  • Receipts for capital improvements you make
  • The closing statement and selling-expense records from the sale

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

Frequently Asked Questions

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

Yes. IRC Section 1014 reaches property acquired from a decedent no matter how it passes, including through a revocable trust, a transfer-on-death deed, joint ownership with survivorship, or a beneficiary designation. Probate is not required for the basis to reset to the date-of-death value.

Can I sell inherited Maine property right away and still get the step-up?

Yes. Your basis is the date-of-death value, and any gain is the sale price minus that value. Inherited property counts as long-term from day one under IRC Section 1223, so the lower long-term capital gains rates apply even on an immediate sale.

Does Maine tax me for inheriting property?

No. Maine has no inheritance tax. The estate itself may owe Maine estate tax if it tops the year's exclusion, which is $7,160,000 for 2026 deaths under 36 M.R.S. Section 4102, but a beneficiary owes no Maine tax just for receiving an inheritance. You do owe income tax on any gain when you later sell.

What if the inherited property lost value before the death?

The rule runs both ways. If the asset was worth less at death than the decedent paid, the basis steps down to the lower date-of-death value. Heirs cannot claim the paper loss the owner could have taken.

Can I use the home-sale exclusion on an inherited house?

Only if you make it your own home. The $250,000 (single) or $500,000 (married filing jointly) exclusion under IRC Section 121 requires that you live in the house as your main residence for at least two of the five years before you sell. You do not inherit the decedent's use of the home.

How do I prove the date-of-death value years later?

Order a retroactive appraisal dated as close to the death as possible for real estate, pull date-of-death statements from brokers for securities, and keep the probate inventory. Gather these early, because the trail gets cold fast.

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

Sources:

It is not legal advice.

Information current as of July 21, 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 Maine can change. Consult with a qualified attorney for advice specific to your situation. Full disclaimer.

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