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Massachusetts Step-Up in Basis Explained
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Massachusetts Step-Up in Basis Explained

Massachusetts step-up in basis: how IRC Section 1014 resets inherited property to date-of-death value, and how the state's 5 percent gains rate applies.

By Settled Editorial

When you inherit property in Massachusetts, 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. You owe tax only on the growth after the death, and only when you sell.

The reset itself is federal law, not Massachusetts law. What Massachusetts adds is the paperwork that proves your number and the rate you pay later. Read on for how the basis is set, how the gain is figured, and where the state 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 two-family in Worcester in 1991 for $92,000. At her death in 2026 it is worth $525,000. If she had signed the deed over to you as a gift while she was alive, you would take her $92,000 cost, called a carryover basis, and a sale at $525,000 would show a $433,000 gain.

How the reset works

Because you inherited the property instead, your basis steps up to the $525,000 date-of-death value. Sell at $525,000 and your gain is $0. Sell a year later for $549,000 and you report a $24,000 gain rather than $457,000.

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. Massachusetts law sets the moment of transfer. Under M.G.L. c. 190B, § 3-101, the decedent's real and personal property devolves at death to the devisees under the will or to the heirs, subject to administration, which fixes the valuation date the federal rule uses.

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How Step-Up Works for Massachusetts 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. 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) hands you the decedent's adjusted basis instead.

Massachusetts is a separate-property state

Massachusetts follows common-law, separate-property rules, not community property. That matters most for a married couple. On a home held as tenants by the entirety or as joint tenants with right of survivorship, only the deceased spouse's half steps up at the first death. The survivor keeps the original cost on their own half. Couples in community property states can reset the whole asset at the first death, and that treatment does not reach Massachusetts.

Figuring Your New Basis in Massachusetts

Step 1: Set the date-of-death value

Massachusetts hands you this document already. Under M.G.L. c. 190B, § 3-706, the personal representative must prepare an inventory within 3 months after appointment listing the property the decedent owned at death in reasonable detail, with the fair market value of each item as of the date of death and any encumbrance on it. That inventory is the family's basis record. Ask the personal representative for a copy and save it, because § 3-706(c) lets them satisfy the duty by mailing it to the interested persons instead of filing it with the court.

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 is 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, not a simple midpoint.
  • 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 is not a way to raise basis: Section 2032(c) bars the election unless it DECREASES both the value of the gross estate and the estate tax, so it only ever moves values down. The election is made by the executor on the federal return. With the federal filing threshold at $15,000,000 for 2026 deaths, almost no Massachusetts estate files a 706, and 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 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)$525,000
New roof and gutters+$19,000
Kitchen remodel+$28,000
Adjusted basis$572,000
Sale price$615,000
Capital gain you report$43,000

Step-Up by Asset Type

Real estate

Massachusetts has no transfer-on-death deed for real estate, so inherited property here arrives through probate, a revocable living trust, a Massachusetts nominee trust, a life estate deed, joint tenancy, or tenancy by the entirety. Every one of those paths gives the decedent's interest a step-up. Record the new deed at the Registry of Deeds district that covers the property, a different office from the Register of Probate.

One Massachusetts wrinkle stalls closings rather than basis. M.G.L. c. 65C, § 14 puts a lien on the Massachusetts gross estate for 10 years from the date of death unless the tax is sooner paid, and it attaches whether or not any tax is owed. Buyers clear it with a release from the Department of Revenue or, for deaths on or after January 1, 1997, a recorded executor's affidavit stating that the gross estate does not require a federal estate tax filing. Sort that out before you sign a purchase and sale agreement.

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 erases 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, and 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 rate that follows does not reach all of them: Massachusetts defines a collectible by cross-reference to the federal definition, which covers items such as art, antiques, gems, metals, stamps, and coins, and does not sweep in an ordinary car. Massachusetts then taxes a later long-term gain on collectibles differently from a house: M.G.L. c. 62, § 4(a)(1) sets the rate at 12 percent, and the Department of Revenue applies a 50 percent deduction to that gain. Get an appraisal on anything worth real money so the stepped-up number holds up.

Capital Gains Tax After a Massachusetts 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 a 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. A separate 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. Check the current-year figures with the IRS before you file.

Massachusetts charges 5.00 percent on the gain. Gain on a capital asset held more than one year is Part C income under M.G.L. c. 62, § 2(b)(3), and § 4(c) taxes Part C at the Part B rate. Read § 4(b) on its own and you will see 5.3 per cent: that is the 2002 base, which the same subsection steps down annually, and the Department of Revenue publishes the resulting current rate, 5.00 percent for tax year 2026. Two adjustments can move that number:

  • The 4 percent surtax. M.G.L. c. 62, § 4(d) adds 4 percent to the slice of taxable income above a threshold that adjusts each year. For tax year 2026 the Department of Revenue puts it at $1,107,750. A single large inherited-property sale can push a normal year over that line, so run the math before you close.
  • Short-term treatment. Gains on assets held one year or less are taxed at 8.5 percent, and IRC Section 1223(9) keeps inherited property out of that category.

Selling costs such as broker commission and closing fees reduce the gain, and you report the same gain to Massachusetts that you report federally. The mechanics of selling the inherited house, including who signs the deed and when the sale can close, sit in a separate guide.

Massachusetts Estate Tax Is Separate From Basis

These two taxes answer different questions, and mixing them up is the most common mistake on this topic.

The step-up sets the basis an heir uses to figure capital gains on a later sale. The Massachusetts estate tax is a one-time tax the estate itself may owe before assets pass, and Massachusetts is one of the minority of states that still charges one. Under M.G.L. c. 65C, § 2A(g), an estate of a person dying on or after January 1, 2023 owes no Massachusetts estate tax if the federal taxable estate is $2,000,000 or less. Above that line the tax is the old federal credit-table amount, which § 2A(a) as amended effective August 1, 2025 computes on the federal gross estate as adjusted, and § 2A(f) then reduces it by a credit capped at $99,600. Note the table itself runs on the adjusted taxable estate, the taxable estate less $60,000, while § 2A(g)'s no-tax line is read on the federal taxable estate. It is not a tax on the excess over $2,000,000, and plenty of published summaries get that backwards. To test a specific estate against that threshold, run the numbers in the Massachusetts estate tax calculator.

Filing and owing are two different tests, and estates land between them. For a death on or after January 1, 2023 the Department of Revenue requires Form M-706 when the GROSS value of the estate plus adjusted taxable gifts exceeds $2,000,000, while M.G.L. c. 65C, § 2A(g) imposes no tax unless the federal TAXABLE estate exceeds $2,000,000. An estate above the first line and below the second files a return and owes nothing. The return and any payment are due 9 months after the date of death under M.G.L. c. 62C, § 17(a). Massachusetts charges no inheritance tax, so a beneficiary owes the state nothing simply for receiving property. For a fuller side-by-side on estate tax versus capital gains, including who has to file and how the credit is applied, read the 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 the step-up would have erased for your heirs.
  • Avoid gifting appreciated property. A lifetime gift passes your low cost along, while letting the asset pass at death gives the full reset.
  • Use a trust for probate avoidance, not a lifetime transfer. Assets in a revocable trust or a Massachusetts nominee trust step up the same way probate assets do, so you skip probate without losing the reset. Deeding the house to the kids now does not.
  • Write down the values at the time of death. Appraisals and brokerage statements are far easier to get in month one than in year seven.

Records to Keep

Hold on to these so you can support your basis if the IRS or the Department of Revenue asks:

  • The § 3-706 inventory, filed with the Probate and Family Court or mailed to the interested persons
  • Date-of-death appraisals for real estate and high-value items
  • Brokerage statements showing date-of-death values
  • 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.

For the wider picture of what a personal representative has to do and when, see the Massachusetts probate guide, the personal representative's duties, and the Massachusetts probate timeline. If there was no will, Massachusetts intestate succession decides who takes the property whose basis just reset.

Frequently Asked Questions

Is the step-up in basis a Massachusetts rule?

No. The step-up is federal. IRC Section 1014 gives property acquired from a decedent a basis equal to its fair market value at the date of death, and it applies the same way in every state. Massachusetts law sets the moment of transfer under M.G.L. c. 190B, § 3-101 and then taxes the gain you report when you sell.

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 Massachusetts nominee trust, joint tenancy with survivorship, tenancy by the entirety, or a beneficiary designation. Probate is not required for the basis to reset.

What rate does Massachusetts charge on the gain from an inherited house?

5.00 percent. Massachusetts treats gain on a capital asset held more than one year as Part C income and taxes it at the Part B rate under M.G.L. c. 62, § 4(c). A 4 percent surtax applies to the slice of your 2026 taxable income above $1,107,750, so one large sale can reach it.

Does Massachusetts tax me for inheriting property?

No. Massachusetts has no inheritance tax. The estate itself may owe Massachusetts estate tax, and under M.G.L. c. 65C, § 2A(g) an estate of someone who died on or after January 1, 2023 owes none if the federal taxable estate is $2,000,000 or less. A beneficiary owes nothing to the state simply for receiving an inheritance.

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

Start with the inventory. M.G.L. c. 190B, § 3-706 makes the personal representative list every item the decedent owned at death with its fair market value on that date, within 3 months after appointment. Ask the personal representative for a copy rather than assuming the court has one: § 3-706(c) lets the personal representative either file the inventory with the court or mail it to the interested persons, so in many estates it never reaches the docket. Then add date-of-death brokerage statements and any appraisal ordered at the time.

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.

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

Sources:

It is not legal advice.

Information current as of July 29, 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 Massachusetts can change. Consult with a qualified attorney for advice specific to your situation. Full disclaimer.

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