Explaining How The Step-up Basis For Capital Gains Works in Oklahoma Estate Planning

While the step-up basis in value is most commonly associated with the family home, it actually applies to a wide variety of assets. For your Oklahoma clients, focusing on these categories can help them identify where their greatest tax-saving opportunities lie.

Here are the primary assets that can take advantage of a step-up in basis:

1. Real Estate

Real property is often the most significant “win” for the step-up in basis because it tends to appreciate steadily over decades.

• Primary Residences: The family home often has the largest gap between the original purchase price and today’s market value.
• Rental & Investment Properties: These are particularly valuable for a step-up because the owner may have already “depreciated” the asset for tax breaks while living, which usually lowers the basis even further. A step-up wipes out all that “recapture” tax for heirs.
• Vacation Homes & Raw Land: Inherited lake houses or family farmland in rural Oklahoma qualify fully for the reset in value.

2. Financial Investments

Most assets held in a taxable brokerage account (non-retirement) qualify for a step-up.

• Individual Stocks & Bonds: If someone bought stocks in a Fidelity security account in the 90s, the gain could be massive; the step-up erases it.
• Mutual Funds & ETFs: The basis is adjusted to the Net Asset Value (NAV) on the date of death.
• Cryptocurrency: Digital assets like Bitcoin or Ethereum are treated as property by the IRS and are eligible for a step-up in basis to their fair market value at the time of death.

3. Tangible Personal Property & Collectibles

Many people forget that physical “stuff” also has a cost basis. If these items are sold later, the heirs only pay tax on the growth after the date of death.

• Artwork: High-value paintings or sculptures.
• Antiques & Furniture: Inherited heirloom furniture.
• Collectibles: Rare coin collections, stamps, or classic cars.
• Jewelry: Valuable pieces like diamond rings or luxury watches.
• Gold and other precious metals.

4. Business Interests

If a client owns a piece of a company, that interest is an asset in their estate.

• Closely Held Stock: Shares in a family-owned corporation.
• Partnership Interests: A partner’s share in an LLC or LP (though certain “hot assets” like unrealized receivables inside the partnership may have different rules).

Important Exceptions: What Does NOT Get a Step-Up?

It is equally important to advise readers on what won’t benefit from this strategy so they don’t leave these assets to the wrong people.

• IRAs and 401(k)s: These are considered “Income in Respect of a Decedent” (IRD). Heirs will pay ordinary income tax on withdrawals, regardless of the value on the date of death.
• Annuities: Most tax-deferred annuities do not receive a step-up.
• Money Market & Savings Accounts: Since $1 is always worth $1, there is no “gain” to step up.
• Assets in certain Irrevocable Trusts: If an asset is moved into an irrevocable trust and is not included in the owner’s taxable estate, it generally does not receive a step-up at death (unless a “swap power” is used).

When Do You Value The Step-Up Asset

To “prove” the step-up, you should get a professional appraisal for real estate and collectibles shortly after a loved one passes. This is important because you may not sell the property until later, when proving its prior value may be much more difficult. For a free consultation with an estate planning attorney in Tulsa, call Kania Law Office at 918.743.2233. You can also follow this link to ask a free online legal question.