How to Reduce Capital Gains Taxes With a Step‑Up in Basis

When someone inherits property, investments, or other appreciated assets in Florida, one of the biggest tax advantages they receive is the step‑up in cost basis. This powerful tax rule can eliminate decades of unrealized capital gains and dramatically reduce — or even eliminate — capital gains taxes for heirs.

Whether you own real estate, a business, stocks, or long‑held investments, understanding how the step‑up in basis works is essential for smart estate planning. Below is a clear breakdown of how it works, when it applies, and how to use it to protect your family from unnecessary taxes.

What Is a Step‑Up in Basis?

“Basis” is the amount you originally paid for an asset. When you sell it, you pay capital gains taxes on the difference between your basis and the sale price.

A step‑up in basis resets the value of an inherited asset to its fair market value as of the date of the owner’s death.

Example:

• You purchased Florida real estate in 1990 for $100,000.
• You pass away in 2026 when the home is worth $600,000.
• Your children inherit the property with a stepped‑up basis of $600,000.

If they sell the home for $600,000, the taxable gain is $0.

Why the Step‑Up in Basis Is So Valuable

This rule can eliminate massive capital gains taxes on:

• Rental properties
• Primary residences
• Vacation homes
• Stocks, bonds, and mutual funds
• Business interests
• Cryptocurrency
• Land and other appreciated assets

Families in Tampa Bay often inherit property that has appreciated significantly — especially waterfront homes, long‑held investments, or properties in high‑growth areas. A step‑up in basis protects heirs from taxes on decades of appreciation.

How to Use Estate Planning to Maximize the Step‑Up in Basis

1. Keep Appreciated Assets in Your Name (Not Gifted During Life)

If you gift property during your lifetime, the recipient receives your original basis, not a stepped‑up basis. This can create a major tax burden.

Gifting during life = carryover basis (bad for taxes)
Inheriting at death = step‑up in basis (excellent for taxes)

2. Use a Revocable Living Trust

Assets inside a revocable trust still receive a step‑up in basis because you retain control during your lifetime.

This preserves tax benefits while helping your family avoid probate.

3. Keep Homestead and Investment Properties Structured Properly

Florida homestead passes with a step‑up in basis — but investment property must be titled correctly to ensure heirs receive full tax benefits.

Poor titling (like certain joint ownership structures) may unintentionally reduce or eliminate the step‑up.

4. Avoid Certain Types of Joint Ownership

Adding children to a deed during your lifetime may create:

• Loss of homestead protections
• Exposure to their creditors and divorces
• Loss of full step‑up in basis
• Partial capital gains taxes at sale

Before adding anyone to your deed, speak to an estate planning attorney — it often creates more harm than good.

5. Understand Community Property Rules (for Married Couples Moving to Florida)

Florida is not a community property state, so couples moving from places like California or Texas may lose the ability to receive a double step‑up in basis.

Proper planning can help preserve these benefits.

6. Use Trusts Strategically

Some irrevocable trusts do eliminate the step‑up in basis, while others preserve it. For example:

• Medicaid Asset Protection Trusts may limit access but preserve basis in many cases
• Certain asset protection trusts may lose the step‑up

Every situation requires careful analysis.

Frequently Asked Question: Does the Step‑Up in Basis Go Away in 2026?

There has been discussion at the federal level about reducing or eliminating the step‑up rule, but as of 2026, the step‑up in basis remains intact.

Future tax law changes are always possible, which makes planning even more important.

When Is Step‑Up in Basis Especially Helpful?

You should strongly consider step‑up planning if you:

• Own real estate purchased more than 10 years ago
• Have highly appreciated stocks or investment accounts
• Own rental property or land
• Own a business you expect to pass to heirs
• Are planning to downsize but want tax efficiency

Step‑Up Planning Is One of the Biggest Tax Savings Opportunities

The step‑up in basis is one of the most powerful tools for reducing capital gains taxes — and most families don’t even realize they benefit from it.

With proper planning, you can:

• Pass more wealth to your children
• Eliminate unnecessary capital gains taxes
• Simplify inheritance for your heirs
• Protect appreciated assets from taxation

Want to Reduce Capital Gains Taxes for Your Heirs?

At De Paz Law, we help families throughout Tampa Bay structure their estates to maximize the step‑up in basis and protect generational wealth.

If you want to explore how to reduce capital gains taxes through smart estate planning, call us today to schedule a consultation.