Missouri Step-Up in Basis Explained

When you inherit property in Missouri, its tax basis usually steps up to the fair market value on the date the owner died. Under Internal Revenue Code Section 1014, decades of appreciation drop away for tax purposes, so a sale near the date of death produces little or no taxable capital gain. That single adjustment is often the largest tax break in the whole estate.

Missouri is a common-law (separate property) state, so it does not offer the community-property double step-up that states like California and Texas give married couples. Here, when spouses own property jointly, only the deceased spouse's half steps up. Missouri also changed the picture on the income-tax side in 2025: the state now lets an individual deduct the full capital gain reported on the federal return, so an heir who sells inherited property owes no Missouri income tax on the gain. This guide walks through how the step-up works, how to figure your new basis, and how it fits Missouri's income tax and its lack of a death tax.

What Is Step-Up in Basis?

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 Step-Up

Say your father bought a house in St. Louis in 1990 for $80,000. When he died in 2026, the house was worth $410,000. If he had given you the house as a gift while he was alive, you would take his original $80,000 basis (called carryover basis). Selling for $410,000 would mean $330,000 in taxable capital gain on the federal return.

How Step-Up Fixes This

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: $410,000. Sell for $410,000 and your capital gain is $0. Even if you sell a year later for $430,000, your taxable gain is only $20,000 instead of $350,000.

The Legal Foundation

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 applies to property that passes through:

Probate
A revocable living trust
Joint tenancy with survivorship, for the decedent's share
A Missouri beneficiary (transfer-on-death) deed
A payable-on-death or beneficiary designation

Inherited property is also treated as long-term automatically under IRC Section 1223(9), so a sale soon after death still gets long-term rates on the federal side rather than higher short-term rates.

How Step-Up Works for Missouri Inherited Property

What Qualifies

Nearly all capital assets inherited from a decedent receive a step-up:

Real estate, including homes, farmland, and commercial property
Stocks, bonds, mutual funds, and ETFs
Business interests
Collectibles and artwork
Personal property with 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 the beneficiary.
Property gifted before death. If the decedent gave you the property during life, you generally 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).

Separate Property, Not Community Property

This is the point that trips up Missouri families who read national tax articles. Missouri 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.
If spouses own a home as joint tenants with survivorship, only half the property steps up when the first spouse dies.
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 Missouri, 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 Missouri couple whose home cost $160,000 and is worth $660,000 when the first spouse dies:

Half	Original Basis	Value at Death	Basis After Death
Decedent's half	$80,000	$330,000	$330,000 (stepped up)
Survivor's half	$80,000	$330,000	$80,000 (unchanged)
Total	$160,000	$660,000	$410,000

If the survivor later sells for $660,000, the federal 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.

Calculating Your New Basis

Step 1: Determine Fair Market Value at Death

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 probate court 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 for 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 it applies only to estates above the federal exclusion, most Missouri estates never use it.

Step 3: Add Post-Death Improvements

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

Example Calculation

Item	Amount
Fair market value at death (stepped-up basis)	$410,000
Kitchen renovation you completed	+$32,000
New roof you installed	+$15,000
Adjusted basis	$457,000
Sale price	$485,000
Federal taxable capital gain	$28,000

Missouri Now Skips Income Tax on an Individual's Capital Gain

Here is the part that sets Missouri apart from almost every other state. For tax years beginning on or after January 1, 2025, Missouri lets an individual subtract 100 percent of the income reported as a capital gain on the federal return from Missouri adjusted gross income (RSMo 143.121). House Bill 594, signed in 2025, made Missouri the first state to fully exempt an individual's capital gains from state income tax. (Source: Missouri Department of Revenue, capital gains exemption.)

So when you, as an individual, sell inherited property in Missouri for more than its stepped-up basis, the gain that shows up on your federal return drops out of your Missouri taxable income. You still report it federally, and federal capital gains tax can still apply, but Missouri collects nothing on that individual gain.

That flips the usual reason the step-up matters in this state. The step-up still shrinks your federal capital gain, which is the tax that remains. On the Missouri side, an individual's gain on the sale is already deductible, so the step-up mainly protects your federal bill.

Two limits are worth watching:

The deduction is written for individuals. If the estate or a trust sells the property and reports the gain at the fiduciary level before distributing it, that entity-level gain may not qualify for the individual deduction. Confirm the treatment with a tax professional before an estate sells an appreciated asset.
Corporations do not get the full deduction yet. The corporate version turns on only after Missouri's top individual income tax rate falls to 4.5 percent or lower. The top individual rate is 4.7 percent for 2025 (RSMo 143.011).

At the federal level, long-term capital gains are taxed at 0 percent, 15 percent, or 20 percent depending on your income, and an extra 3.8 percent net investment income tax can apply at higher income levels. The step-up shrinks the gain those federal rates reach.

No Missouri Estate or Inheritance Tax

Missouri has no state estate tax and no state inheritance tax. Its old estate tax was a pick-up tax tied to a federal credit that Congress phased out, so Missouri collects no estate tax for deaths on or after January 1, 2005 (RSMo Chapter 145). Money you inherit is generally not Missouri income to you, and no Missouri estate tax return is due.

Only the federal estate tax can apply, and it reaches only estates above the federal exclusion ($15 million per person for deaths in 2026), so it affects very few families. To check whether the federal estate tax could touch an estate, read the Missouri federal estate tax guide or run the numbers in the Missouri estate tax calculator. In Missouri the step-up is about income tax on future capital gains, not about dodging a state death tax, because the state levies none.

The cost of opening a Missouri estate is court filing fees, publication charges, and recording fees, not a tax on the estate's value. The Missouri probate guide and the Missouri probate costs breakdown show how those court costs add up, and none of them change your income-tax basis.

Step-Up vs. Step-Down

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

Stock purchased for $110,000
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, it can be better to sell it before death so the loss stays usable for tax purposes.

Planning Around the Single Step-Up

Hold Appreciated Assets Until Death

If you own highly appreciated assets, holding them until death lets your heirs receive a step-up. Selling before death triggers a federal capital gain that heirs could have avoided.

Do Not Gift Highly Appreciated Property

When you gift property during life, the recipient takes your original basis (carryover basis) and the built-in gain follows the asset. For assets that have grown a lot, transferring them at death usually leaves a smaller federal tax bill than gifting them during life. If you want to gift, gift assets with little built-in gain.

A Trust or Beneficiary Deed Keeps the Step-Up

Property in a Missouri revocable living trust receives the same step-up as property that passes through probate, and so does property that passes by a Missouri beneficiary deed. You can avoid probate without giving up the basis benefit.

Watch How Married Couples Title Property

Because Missouri gives only a single step-up, how a couple holds title matters for the survivor. 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 Missouri estate planning attorney can model the titling and any trust options for your family. The Missouri estate planning basics guide covers the documents that go with those choices.

Keep the Documents 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, business valuations, and receipts for any improvements you make after inheriting.

Frequently Asked Questions

Does Missouri have a double step-up in basis?

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

Does Missouri tax my capital gain when I sell inherited property?

For an individual, no. For tax years beginning on or after January 1, 2025, Missouri lets an individual deduct 100 percent of the capital gain reported on the federal return (RSMo 143.121), so the gain above your stepped-up basis is free of Missouri income tax. Federal capital gains tax can still apply, and the step-up shrinks that federal gain.

Does Missouri have an estate or inheritance tax?

No. Missouri has no state estate tax and no inheritance tax. It collects no estate tax for deaths on or after January 1, 2005, because its old pick-up tax was tied to a repealed federal credit (RSMo Chapter 145). Only the federal estate tax can apply, and it reaches only estates above the federal exclusion.

Do retirement accounts get a step-up in Missouri?

No. Traditional IRAs and 401(k)s are income in respect of a decedent, so they do not receive a basis step-up. A beneficiary owes ordinary income tax on withdrawals from those accounts.

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. Gifting appreciated property during life passes the built-in gain to the person who receives it.

Does the Missouri capital gains deduction cover a sale by the estate?

Maybe not. The Missouri deduction is written for an individual. If the estate or a trust sells the property and reports the gain at the fiduciary level before distributing it, that gain may not qualify for the individual deduction. Confirm the treatment with a tax professional before an estate sells an appreciated asset.

Sources:

Title: Section 143.121, Missouri Adjusted Gross Income Defined. Publisher: Missouri Revisor of Statutes. Publication Date: 2025. URL: https://revisor.mo.gov/main/OneSection.aspx?section=143.121
Title: Section 143.011, Resident Individuals Rate of Tax. Publisher: Missouri Revisor of Statutes. Publication Date: 2023. URL: https://revisor.mo.gov/main/OneSection.aspx?section=143.011
Title: Missouri First State to Fully Exempt Capital Gains Tax. Publisher: Missouri Department of Revenue. Publication Date: 2025-08-26. URL: https://dor.mo.gov/news/newsitem/uuid/15044650-59dd-48f4-975a-01988d485255
Title: Chapter 145, Estate Tax. Publisher: Missouri Revisor of Statutes. Publication Date: Not listed. URL: https://revisor.mo.gov/main/OneChapter.aspx?chapter=145
Title: 26 U.S. Code Section 1014, Basis of Property Acquired From a Decedent. Publisher: Cornell Law School Legal Information Institute. 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: Not listed. URL: https://www.irs.gov/publications/p551

This guide is general information about the step-up in basis for Missouri inherited property, not advice for your own situation. Tax outcomes turn on your numbers, so confirm any figure with a tax professional or estate planning attorney. It is not legal advice.