If an individual inherits a house that was purchased by a decedent for $100,000, but at the time of the decedent's death the house is valued at $300,000, the heir's basis in the house would be stepped up to $300,000. If the heir later sells the house for $350,000, the capital gains tax would apply only to the $50,000 gain over the stepped up basis, rather than the $250,000 gain over the decedent's original purchase price.
During the estate planning meeting, the attorney explained how the stepped up basis for the inherited properties would significantly reduce the capital gains tax for the beneficiaries.
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