Maryland Step-Up in Basis Explained

When you inherit property in Maryland, its tax basis usually resets to the fair market value on the date the owner died. That step-up erases the gain that built up during the decedent's life, so you owe capital gains tax only on the increase in value after you inherited. For many families it is the biggest tax break in the whole estate.

Maryland is a common-law (separate property) state, so it does not give the community-property double step-up that states like California and Texas allow married couples. Here, when spouses own property together, only the deceased spouse's half steps up. Maryland then taxes the gain you do have as ordinary income, and a 2025 surtax reaches higher earners, so getting the basis right matters even more. This guide walks the rule, the math, and how it fits Maryland's income tax and the two death taxes.

Read this next to the guide to selling inherited property in Maryland, the Maryland estate and inheritance tax guide, and the Maryland probate avoidance guide.

What Step-Up in Basis Means

When someone buys property, they have a "basis" in it, usually what they paid. When they sell, they owe capital gains tax on the difference between the sale price and that basis.

The Problem Without a Step-Up

Say your mother bought a Baltimore rowhouse in 1992 for $90,000. When she died in 2026, the house was worth $420,000. If she had signed it over to you as a gift while she was alive, you would take her original $90,000 basis, which tax law calls carryover basis. Selling for $420,000 would leave you with $330,000 of taxable capital gain.

How the Step-Up Fixes It

Because you inherited the house instead of receiving it as a gift, your basis steps up to the fair market value on the date of death: $420,000. Sell for $420,000 and your capital gain is $0. Even if you sell a year later for $440,000, your taxable gain is only $20,000 instead of $350,000.

Where the Rule Comes From

The step-up comes from Internal Revenue Code Section 1014, which sets the basis of property acquired from a decedent at its value on the date of death. It reaches property that passes through:

Probate
A revocable living trust
Joint tenancy or tenancy by the entirety, for the decedent's share
A payable-on-death or transfer-on-death account
A beneficiary designation

Inherited property also counts as long-term automatically under IRC Section 1223(9), so a sale soon after death still gets long-term rates instead of the higher short-term rates.

How Step-Up Works for Maryland Inherited Property

What Qualifies

Almost every capital asset inherited from a decedent receives a step-up:

Real estate, including homes, land, and rental property
Stocks, bonds, mutual funds, and ETFs
Business interests
Collectibles and artwork
Personal property that has value

What Does Not Qualify

Some assets do not step up:

Income in respect of a decedent (IRD). Traditional IRAs, 401(k)s, and other tax-deferred retirement accounts keep their character. Withdrawals are taxed as ordinary income to whoever inherits them.
Property gifted before death. If the decedent handed you the property during life, you take their original basis under IRC Section 1015 (carryover basis).
Property you gave the decedent within a year of death. If you gave appreciated property to the decedent and it came back to you within one year, no step-up applies under IRC Section 1014(e).

Maryland Is a Separate-Property State

This is the point that trips up Maryland families who read national tax articles. Maryland is a common-law, separate-property state, not a community property state. So the double step-up does not apply here.

Only the decedent's share of jointly owned property receives a step-up.
Maryland spouses often hold a home as tenants by the entirety, but that survivorship title still steps up only the deceased spouse's half.
The surviving spouse's half keeps its original basis.

In a community property state the entire asset would step up when the first spouse dies. In Maryland, the survivor still carries the built-in gain on their own half until they sell or die.

Here is what that looks like for a Maryland couple whose home cost $200,000 and is worth $700,000 when the first spouse dies:

Half	Original Basis	Value at Death	Basis After Death
Decedent's half	$100,000	$350,000	$350,000 (stepped up)
Survivor's half	$100,000	$350,000	$100,000 (unchanged)
Total	$200,000	$700,000	$450,000

If the survivor later sells for $700,000, the taxable gain is $250,000 rather than the $0 a community property state would allow. The federal home-sale exclusion under Section 121 can still shelter some of that gain if the survivor lived in the home as a main residence.

Figuring Your New Basis

Step 1: Date-of-Death Fair Market Value

The date-of-death value becomes your new basis.

Real estate: Get an appraisal as of the date of death. The estate inventory filed with the Register of Wills may already carry a value.
Publicly traded stock: Use the average of the high and low trading prices on the date of death. If death fell on a weekend or holiday, average the trading days before and after.
Closely held business interests: Use a professional business valuation.
Personal property: Use appraisals for high-value items and fair market value from comparable sales.

Step 2: Check the Alternate Valuation Date

If the estate files a federal estate tax return (Form 706), the executor may elect the alternate valuation date, which is six months after death, under IRC Section 2032. The election is allowed only when it lowers both the gross estate and the federal estate tax. Because that reaches only estates above the federal exclusion, most Maryland estates never use it.

Step 3: Add Post-Death Improvements

Capital improvements you make after inheriting raise your basis: renovations, additions, a new roof, a new HVAC system, or land improvements. Keep the receipts.

A Worked Example

Item	Amount
Fair market value at death (stepped-up basis)	$500,000
Kitchen renovation you completed	+$25,000
New roof you installed	+$12,000
Adjusted basis	$537,000
Sale price	$560,000
Taxable capital gain	$23,000

Maryland Capital Gains Tax on the Sale

Maryland does not use a separate capital gains rate. It taxes the gain as part of individual income at graduated state rates that top out at 6.5%, and each county adds its own income tax of up to 3.3%. Because Maryland starts its return from your federal adjusted gross income, the stepped-up basis you claim on the federal side flows straight into the Maryland calculation. A larger basis means a smaller gain on both returns.

A 2025 change raised the stakes for larger sales. For tax years beginning after December 31, 2024, Maryland adds a 2% surtax on net capital gain for taxpayers whose federal adjusted gross income tops $350,000. The surtax does not reach the sale of a main home when the sales price is under $1,500,000. (Source: Comptroller of Maryland, Technical Bulletin 58, marylandcomptroller.gov.) The step-up shrinks the net capital gain that both the ordinary rates and this surtax apply to, so a clean date-of-death basis can pull a high-value sale under the threshold.

At the federal level, long-term capital gains are taxed at 0%, 15%, or 20% depending on your income, and an extra 3.8% net investment income tax can apply at higher income levels. The step-up shrinks the gain those rates hit too. If an estate or trust earns income during administration, that income may call for a Maryland fiduciary income tax return in addition to federal Form 1041.

Maryland Estate and Inheritance Tax Are Not Basis Taxes

Maryland is the only state that charges both a state estate tax and a state inheritance tax, and neither one changes your income-tax basis.

Estate tax. Maryland taxes an estate on the amount above a $5,000,000 exemption, with a top rate of 16%. That exemption has not moved since 2019 and is not indexed for inflation (Md. Tax-General Section 7-309). Use the Maryland estate tax calculator to estimate what an estate above that exemption would owe. (Source: Md. Code, Tax-General Section 7-309, mgaleg.maryland.gov.)
Inheritance tax. Maryland charges a 10% inheritance tax (Md. Tax-General Section 7-204) on property passing to collateral takers, such as nieces, nephews, cousins, and friends. A spouse, children and other lineal descendants, parents, grandparents, and siblings pay nothing (Md. Tax-General Section 7-203), and the Register of Wills collects it. (Source: Maryland Register of Wills, Inheritance Tax, registers.maryland.gov.)

Both are transfer taxes that look at who receives the property and how large the estate is. The step-up is an income-tax rule about the capital gains you owe later when you sell. Read the Maryland estate and inheritance tax guide for the full picture; this page stays on basis.

Step-Up vs. Step-Down

The adjustment runs both ways. If property lost value since the decedent bought it, the basis steps down to the lower value at death.

Stock purchased for $120,000
Worth $70,000 at death
Heir's basis: $70,000

If the heir sells for $70,000, there is no loss to deduct. The built-in loss disappeared at death. When an asset carries a built-in loss, selling it before death can preserve the loss so it stays usable for tax purposes.

Planning to Keep the Step-Up in Maryland

Hold Appreciated Assets Until Death

If you own highly appreciated assets, holding them until death lets your heirs take a step-up. Selling before death triggers a capital gains tax your heirs could have skipped.

Think Twice Before Gifting Appreciated Property

When you gift property during life, the person who receives it takes your original basis, and the built-in gain follows the asset. For property that has grown a lot, transferring it at death usually leaves a smaller tax bill than gifting it during life. If you want to gift, gift assets with little built-in gain.

A Living Trust Keeps the Step-Up

For a death before October 1, 2026 Maryland has no operative transfer-on-death deed, so you cannot yet name a beneficiary on real estate this way (Maryland enacted a TOD deed in 2026 under Chapter 751 / House Bill 738, effective October 1, 2026). What you can do is fund a Maryland revocable living trust or hold property with survivorship titling. Both keep the home out of probate, and the property still receives the same date-of-death step-up as property that runs through an estate. See the Maryland probate avoidance guide for the full set of tools.

Watch How Married Couples Hold Title

Because Maryland gives only a single step-up, how a couple holds title shapes what the survivor owes. If one spouse holds most of the appreciated assets, planning ahead can put more of the gain in the estate that steps up first. A Maryland estate planning attorney can model the titling and any trust options for your family.

Keep the Records That Prove Your Basis

The IRS can question a claimed basis, so keep the proof: date-of-death appraisals for real estate, brokerage statements showing date-of-death values, the estate inventory filed with the Register of Wills, business valuations, and receipts for improvements you make after inheriting. Review these before you list an inherited asset for sale.

Frequently Asked Questions

Does Maryland give a double step-up in basis?

No. Maryland is a common-law (separate property) state, so under IRC Section 1014 only the decedent's half of jointly owned property steps up to its date-of-death value. The surviving co-owner's half keeps its original basis. The double step-up on the whole asset applies only in community property states.

Does Maryland tax the capital gain when I sell inherited property?

Yes. Maryland taxes capital gains as ordinary income at state rates up to 6.5%, plus a county income tax of up to 3.3%. A 2% surtax on net capital gain also applies to taxpayers with federal adjusted gross income over $350,000 for tax years beginning after 2024. A step-up shrinks the gain all of those rates hit.

Does Maryland have an estate or inheritance tax?

Yes, both. Maryland taxes estates above a $5,000,000 exemption (Md. Tax-General Section 7-309) and charges a 10% inheritance tax (Md. Tax-General Section 7-204) on property passing to collateral takers. A spouse, children and other lineal descendants, parents, grandparents, and siblings are exempt (Md. Tax-General Section 7-203). Those are transfer taxes, separate from your income-tax basis.

Do retirement accounts get a step-up in Maryland?

No. Traditional IRAs and 401(k)s are income in respect of a decedent, so they do not receive a basis step-up. Whoever inherits the account owes ordinary income tax on the withdrawals.

Maryland's transfer-on-death deed is not operative until October 1, 2026. Can I still avoid probate and keep the step-up?

Yes. For a death before October 1, 2026 Maryland has no operative transfer-on-death deed (Maryland enacted one in 2026 under Chapter 751 / House Bill 738, effective October 1, 2026), but a revocable living trust and survivorship titling both keep property out of probate, and the assets still receive the date-of-death step-up under IRC Section 1014.

What if I received the property as a gift before death?

Lifetime gifts take a carryover basis under IRC Section 1015, not a stepped-up basis. Only property transferred at death receives the step-up under IRC Section 1014.

This guide is general information about Maryland inherited property and taxes. It is not legal advice. Tax situations vary, so confirm anything that affects your sale with a tax professional or a licensed Maryland attorney.

Sources:

Title: Internal Revenue Code Section 1014, Basis of Property Acquired From a Decedent. Publisher: Legal Information Institute, Cornell Law School. Publication Date: Not listed. URL: https://www.law.cornell.edu/uscode/text/26/1014
Title: Publication 551, Basis of Assets. Publisher: Internal Revenue Service. Publication Date: 2024. URL: https://www.irs.gov/publications/p551
Title: Md. Code, Tax-General Section 7-309, Maryland Estate Tax Unified Credit. Publisher: Maryland General Assembly. Publication Date: Current official code, accessed July 21, 2026. URL: https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gtg&section=7-309&enactments=false
Title: Md. Code, Tax-General Section 7-203, Inheritance Tax Exemptions. Publisher: Maryland General Assembly. Publication Date: Current official code, accessed July 21, 2026. URL: https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gtg&section=7-203&enactments=false
Title: Technical Bulletin 58, Capital Gains. Publisher: Comptroller of Maryland. Publication Date: 2025. URL: https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/technical-bulletins/tb-58.pdf
Title: Inheritance Tax. Publisher: Maryland Register of Wills. Publication Date: Not listed. URL: https://registers.maryland.gov/main/taxes.html

It is not legal advice.