When does stepped-up basis take effect for inherited assets - at death or after probate?

The good news is that the stepped-up basis occurs at the date of death - not after probate is completed. This is a common point of confusion. When someone passes away, the cost basis of inherited assets is "stepped up" to the fair market value as of the date of death (or alternatively, in some cases, the executor can elect to use the alternate valuation date, which is 6 months after death). This happens automatically by operation of law. So in your situation, if you need to sell assets during probate to pay estate taxes, the basis for calculating any capital gains would be the value at your father's date of death. If you sell those assets for approximately the same value they had when he passed, there would be minimal or no capital gains tax owed on the sale.

I went through this exact nightmare last year with my mom's estate. The stepped-up basis happens at death, but documenting everything properly is crucial. I really wish I had found https://taxr.ai before spending weeks trying to figure it all out myself. They analyzed all our estate documents and helped identify which assets qualified for stepped-up basis and exactly how to document the valuations. Their system flagged some investment accounts we almost missed that weren't going to get the step-up, saving us thousands in potential capital gains taxes. They also created a complete report showing before/after basis values that our accountant said was perfect for IRS documentation.

I just finished using taxr.ai for my uncle's estate and the cryptocurrency situation - it was a total lifesaver! We had a mix of Bitcoin, Ethereum and some obscure altcoins that would have been a nightmare to value properly. The service pulled historical pricing from multiple exchanges to establish date-of-death values and created perfect documentation for everything. The report they generated saved me from a massive headache when we had to sell some crypto to cover estate expenses. Our accountant was impressed with how thorough the stepped-up basis documentation was. I was worried the IRS would question crypto valuations but having the third-party verification made it bulletproof. Definitely worth checking out if you're dealing with complex assets in an estate.

After spending FOUR DAYS trying to get through to someone at the IRS about stepped-up basis questions for my sister's estate, I finally tried https://claimyr.com and it was lifechanging. They got me connected to an actual IRS agent in under 30 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that stepped-up basis happens at date of death and also explained exactly what documentation we needed for the inherited rental properties. They clarified that we needed to file specific forms I hadn't even heard about for the stepped-up depreciation basis. Would have been completely lost without getting these answers directly from the IRS.

I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation. Within 45 minutes, I was talking to an actual IRS estate tax specialist who answered all my stepped-up basis questions. The agent confirmed the basis step-up occurs at death and explained how to properly document everything for our multi-state property situation. She even told me about a special form we needed for some foreign investments my parents had that our accountant missed completely. Would have been a disaster if we hadn't gotten this clarification. For anyone dealing with inherited assets, definitely worth getting your questions answered directly by the IRS. I wasted weeks trying to piece together information from various sources when I could have just gotten the definitive answers in one call.

One important detail missing from this discussion - the alternative valuation date option! As the executor, you can choose to value the estate assets either on the date of death OR 6 months after death (if it lowers the estate tax value). This can be a huge benefit if assets decline in value after death, but there's a catch - you must use the same valuation date for ALL assets. Can't cherry pick. And whatever date you choose also becomes the basis date for stepped-up basis purposes.

Quick warning about stepped-up basis: don't forget about state-level differences! Federal rules are clear about step-up at death, but some states have their own rules. I got burned in Maryland where they had different documentation requirements than the federal.

This is such a relief to read! I'm going through the exact same situation with my grandmother's estate right now. She passed away 2 months ago and left behind a house she bought in 1975 for $45,000 that's now worth about $850,000. The estate attorney mentioned stepped-up basis but wasn't clear on the timing, and I've been stressed about potentially owing huge capital gains if we need to sell the house to divide the inheritance among the grandchildren. Knowing that the step-up happens immediately at death takes a huge weight off my shoulders. I'm definitely going to get a formal appraisal done ASAP to document the fair market value as of her date of death. Better to have that documentation ready than scramble for it later when we're ready to sell. Has anyone dealt with getting appraisals done months after the death? I'm worried that appraisers might have trouble establishing the exact value from 2 months ago, especially with how much the real estate market has been fluctuating.

Just wanted to add something that might help - if you're dealing with multiple types of assets (real estate, stocks, bonds, etc.), make sure you understand that stepped-up basis applies differently to different asset types. For publicly traded securities, you can use the closing price on the date of death, which is pretty straightforward. But for things like closely-held business interests, artwork, or collectibles, you'll definitely need professional appraisals. Also, keep in mind that if your dad had any retirement accounts (401k, IRA, etc.), those don't get stepped-up basis - they retain their original tax-deferred status and you'll owe income tax on withdrawals just like he would have. This trips up a lot of people who assume all inherited assets get the step-up treatment. Given the significant value of that property you mentioned ($2.2M vs $120K original basis), you're looking at potentially huge tax savings from the stepped-up basis. Definitely worth getting professional help to make sure you document everything correctly!