New York Step-Up in Basis Guide

New York step-up in basis rules can save heirs thousands of dollars in capital gains tax. When you inherit property in New York, the tax basis of that property steps up to its fair market value on the date of the owner's death. Decades of appreciation drop away for tax purposes, and you owe capital gains tax only on any increase in value after you inherit it.

This step-up affects the income tax an heir pays when they sell inherited property. It is a separate question from New York's estate tax, which the estate may owe at death. This guide keeps those two taxes apart, explains the rules, shows how to calculate your new basis, and covers the strategies that keep more of the benefit in your family.

What Is Step-Up in Basis?

When someone buys property or an asset, they have a "tax basis" in it, usually equal to 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

Imagine your mother bought a house in Buffalo in 1985 for $60,000. When she died in 2026, the house was worth $300,000. If she had given you the house as a gift during her lifetime, your basis would have stayed at her original $60,000 (called carryover basis). Selling for $300,000 would mean $240,000 in taxable capital gains.

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: $300,000. If you sell for $300,000, your capital gain is $0. Even if you sell a year later for $315,000, your taxable gain is only $15,000 instead of $255,000.

The Legal Foundation

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

• Probate
• A trust
• Joint tenancy with right of survivorship (for the decedent's share)
• A transfer-on-death deed or payable-on-death account
• Beneficiary designation

How Step-Up Works for New York Inherited Property

What Qualifies for Step-Up

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

• Real estate (homes, land, commercial property)
• Stocks and bonds
• Mutual funds and ETFs
• Business interests
• Collectibles and artwork
• Personal property that holds value

What Does Not Qualify

Some assets receive no step-up:

• Income in respect of a decedent (IRD): Traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. Distributions are taxed as ordinary income to the beneficiary.
• Property gifted before death: If the decedent gave you the property during their lifetime, you generally take their original basis (carryover basis) under IRC Section 1015.
• Assets you gave the decedent within one year of death: If you gave appreciated property to the decedent and it returned to you within one year of their death, no step-up applies (IRC Section 1014(e)).

Separate Property, Not Community Property

New York is a common-law separate property state, not a community property state. That distinction changes how much of a jointly owned asset steps up:

• Only the decedent's share of jointly owned property receives a step-up.
• If spouses own a home as joint tenants with right of survivorship, only half the property steps up when the first spouse dies.
• The surviving spouse's half keeps its original basis.

This is the single step-up. It differs from community property states, where IRC Section 1014(b)(6) steps up the entire asset when the first spouse dies. New York heirs do not get that double step-up.

New York Estate Tax vs. Step-Up in Basis

Families often mix up two taxes that work very differently. Keeping them separate matters.

The step-up in basis is about income tax. It lowers the capital gains tax an heir pays when they sell inherited property. It costs the estate nothing at death.

New York's estate tax is a separate tax the estate may owe at death, based on the size of the estate. New York gives each estate a basic exclusion amount, which is $7,350,000 for deaths in 2026 under the state's estate tax. An estate at or below the exclusion generally owes no New York estate tax.

New York then adds a feature that practitioners call the cliff. The exclusion phases out as the estate rises above the exclusion amount. Once the New York taxable estate passes 105% of the exclusion (about $7,717,500 in 2026), the estate loses the entire exclusion, and New York taxes the whole estate from the first dollar, not just the amount above the exclusion. New York estate tax rates run from roughly 3.06% to 16%, and the estate tax return, Form ET-706, is generally due within nine months after death.

Two points keep this in perspective. Transfers to a surviving spouse generally qualify for a marital deduction, so the estate tax most often reaches larger estates that do not pass entirely to a spouse. And the estate tax has no effect on the step-up. Even an estate that owes New York estate tax still passes a stepped-up basis to the heirs, and an estate far below the exclusion still gets the step-up. To size a New York estate against the threshold, see our New York estate tax guide. The federal estate tax is a separate layer that reaches only estates above the federal exclusion ($15 million per person for deaths in 2026), so a New York estate can owe state estate tax while owing no federal tax at all.

Calculating Your New Tax Basis

Step 1: Determine Fair Market Value at Death

The date-of-death value becomes your new basis. Get a professional appraisal for real estate as of the date of death (the estate may already have one from the Surrogate's Court inventory), use the average of the high and low trading prices for publicly traded securities, and use a professional valuation for closely held business interests. The next section covers each asset type in more detail. Keep the documentation.

Step 2: Check the Alternate Valuation Date

If the estate filed a federal estate tax return (Form 706), the executor may have elected the alternate valuation date, which is six months after death (IRC Section 2032). The election is allowed only when it lowers both the gross estate and the federal estate tax. If it was made, your basis is the value on that alternate date, or the date of disposition for anything sold within six months. Because it applies only to estates above the federal exclusion, few New York families ever reach it.

Step 3: Add Post-Death Improvements

After you inherit, capital improvements you make increase your basis:

• Renovations and additions
• Major upgrades that add value, such as a new roof or HVAC system
• Land improvements

Keep receipts for the work.

Example Calculation

Step-Up for Different Asset Types

Real Estate

Real estate is the most common asset where the step-up matters. In New York, inherited real estate can pass through several channels:

• Probate: The stepped-up basis carries to the heir who receives the property through New York probate.
• Trust: Property held in a revocable living trust receives the same step-up as probate property.
• Survivorship deed: The decedent's share steps up; the surviving owner's share does not.

Stocks and Securities

Each security held at death steps up to its date-of-death value, which helps most with shares held for decades. Mutual fund basis steps up to the net asset value on the date of death. Ask the broker for a date-of-death statement, which most firms provide.

Family Businesses

Business interests receive a step-up, though the mechanics depend on the entity:

• Sole proprietorship: Each business asset steps up individually.
• Partnership or LLC: The inherited interest steps up, and a Section 754 election can adjust the inside basis of the entity's assets.
• S corporation: The stock basis steps up, but the inside basis of corporate assets does not change.

Collectibles and Personal Property

Art, antiques, jewelry, vehicles, and other property of value all step up. Document the date-of-death value with appraisals.

New York Capital Gains Tax

New York has no separate capital gains rate. It taxes capital gains as part of individual income at graduated rates. The rates reach about 10.9% at the highest bracket under Tax Law Section 601, but most sellers fall in lower brackets, so check the schedule that fits your income for the year you sell. New York City and Yonkers residents may owe a local income tax on top of the state tax.

Because the gain is taxed as ordinary income, a step-up lowers both your federal and your New York tax when you sell inherited property. New York also lets you reduce the taxable gain by:

• Selling expenses (real estate commissions, closing costs)
• Legal and accounting fees related to the sale
• Capital improvements, which add to your basis

If an estate or trust earns income during administration, that income may require a New York fiduciary income tax return in addition to federal Form 1041.

Federal Capital Gains Tax

At the federal level, long-term capital gains (assets held more than one year) receive lower rates than ordinary income. The rate is 0%, 15%, or 20% depending on your taxable income, and the income thresholds adjust each year for inflation, so check the current-year figures.

Net Investment Income Tax

An extra 3.8% tax applies to net investment income, including capital gains, for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly).

Holding Period for Inherited Property

Inherited property is automatically treated as long-term under IRC Section 1223(9), no matter how long the decedent or the heir actually held it. You qualify for the lower long-term rates even if you sell the day after you inherit.

Planning Strategies to Maximize the Step-Up

Hold Appreciated Assets Until Death

If you own highly appreciated assets, holding them until death lets your heirs receive a full step-up. Selling before death triggers capital gains tax that the step-up would have erased.

Gift Low-Basis Assets, Keep Appreciated Ones

When you gift property during your lifetime, the recipient takes your original basis (carryover basis) and loses the step-up. If you plan to give assets away, give the ones with little built-in gain and keep the highly appreciated assets in your estate for the step-up.

Use a Revocable Living Trust

Property in a revocable living trust receives the same step-up as property passing through probate, so a trust gives your family probate avoidance without giving up the tax benefit. See our New York revocable living trust guide and our guide on how to avoid probate in New York. To weigh the cost of probate against a trust, use our New York probate fee calculator or read about New York probate costs.

Think About the Surviving Spouse's Half

Because New York is a separate property state, only the decedent's half of jointly owned property steps up. Married couples should think about how property is titled, whether one spouse holds far more appreciated assets, and whether a trust plan can position each spouse's share for a step-up.

Watch for a Step-Down

The adjustment works both ways. If property is worth less at death than the decedent paid, the basis steps down to the lower date-of-death value, and the built-in loss disappears. When an asset carries a built-in loss, selling it before death can let the loss be used for tax purposes.

Keep Your Records

The IRS can challenge a claimed basis. Protect the step-up by keeping date-of-death appraisals, the estate inventory filed with the Surrogate's Court, brokerage date-of-death statements, receipts for post-inheritance improvements, and the settlement statement from any sale. Hold these papers for at least three years after you file the return that reports the sale.

Frequently Asked Questions

Does New York have a double step-up in basis?

No. New York is a common-law separate property state, so under IRC Section 1014 only the decedent's share of jointly owned property steps up. The surviving co-owner's share keeps its original basis. The double step-up under IRC Section 1014(b)(6) applies only in community property states.

Is New York's estate tax the same as the step-up in basis?

No. They are two different taxes. The step-up lowers the income (capital gains) tax an heir owes when selling inherited property. New York's estate tax is a separate tax the estate may owe at death, and only when the New York taxable estate passes the basic exclusion amount ($7,350,000 for deaths in 2026). New York also has a cliff: once the estate exceeds 105% of the exclusion (about $7,717,500 in 2026), New York taxes the whole estate, not just the amount above the exclusion.

Does New York tax the capital gain when I sell inherited property?

Yes. New York taxes capital gains as ordinary income at graduated rates that reach about 10.9% at the top bracket under Tax Law Section 601. Most sellers fall in lower brackets. A step-up reduces the taxable gain, so selling at the stepped-up value often leaves little or no New York taxable gain.

Do retirement accounts get a step-up in New York?

No. Traditional IRAs and 401(k)s are income in respect of a decedent, so they receive no basis step-up. Beneficiaries owe ordinary income tax on withdrawals.

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 that passes at death receives the step-up under IRC Section 1014.

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

Yes. Your basis is the date-of-death value, and inherited property is treated as long-term under IRC Section 1223(9). A sale soon after death still qualifies for long-term capital gains rates.

Related New York Guides

• Selling Inherited Property in New York
• New York Probate Guide
• New York Revocable Living Trust
• How to Avoid Probate in New York
• New York Estate Tax
• New York Probate Cost Calculator

---

Sources

Last Updated: July 2026. This guide provides general information about the step-up in basis for New York inherited property. Tax situations vary by individual. Consult a tax professional or CPA for advice specific to your situation. It is not legal advice.