Step-Up in Basis in Texas (2026 Guide): What It Means and Why It Can Save Families Thousands

If you inherit property after someone passes away, there’s a tax concept that can make a huge financial difference:

👉 Step-up in basis

Most people have never heard of it until they inherit:

• A house
• Investment property
• Stocks
• Or other appreciated assets

And once they do hear about it, the next question is usually:

👉 “Wait… does this mean I pay less taxes?”

In many cases:

👉 Yes.

A step-up in basis can significantly reduce capital gains taxes when inherited property is sold.

Let’s break down how it works in Texas and why it matters so much in estate planning and probate.

What Is a Step-Up in Basis?

The “basis” of an asset is generally:
👉 What the owner originally paid for it.

A step-up in basis adjusts that value after death to:
👉 The asset’s fair market value on the date of death.

This can dramatically reduce taxable gains for heirs.

Simple Example of How It Works

Let’s say:

• Your parent bought a home decades ago for $100,000
• At the time of death, the home is worth $500,000

Without a step-up:

• Selling for $500,000 could create a huge taxable gain

With a step-up:
👉 The property basis resets to $500,000

So if the heir sells near that value:

• Capital gains taxes may be minimal—or even zero

That’s why this rule is such a major benefit for inherited assets.

What Assets Receive a Step-Up in Basis?

Common assets that may qualify include:

• Real estate
• Stocks and investments
• Business interests
• Certain valuable personal property

The key factor is usually:
👉 Whether the asset is included in the deceased person’s taxable estate.

Does Texas Have a State Inheritance Tax?

Texas does not currently have:

• A state inheritance tax
• A state estate tax

However:
👉 Federal capital gains rules still apply

Which is why the step-up in basis remains extremely important for Texas families.

Why This Matters for Real Estate

This rule often has the biggest impact on:
👉 Homes and investment properties

Especially when:

• Property has been owned for decades
• Values have appreciated significantly

Without a step-up, heirs could face large tax bills after a sale.

What Happens If Property Is Gifted Before Death?

This is where many people accidentally create tax problems.

If someone gifts property during life:
👉 The recipient usually receives the original basis

This is called:
👉 Carryover basis

Using the earlier example:

• Original owner bought property for $100,000
• Gifts it before death
• Recipient inherits the $100,000 basis

If sold for $500,000:
👉 Taxes may apply to the $400,000 gain

That’s why gifting appreciated property before death is not always the best strategy.

Does a Living Trust Affect the Step-Up?

Usually, a properly structured revocable living trust:
👉 Does not eliminate the step-up in basis

Assets in many revocable trusts still receive stepped-up basis treatment because they remain part of the taxable estate.

However:

• Some irrevocable trust structures can affect tax treatment differently

The details matter.

What About Jointly Owned Property?

Joint ownership can complicate basis calculations.

Depending on:

• Marital status
• Ownership structure
• State property laws

Only part—or all—of the asset may receive a stepped-up basis.

How Is the Value Determined?

The new basis is generally based on:
👉 Fair market value at the date of death

This may require:

• Appraisals
• Property valuations
• Financial account valuations

Good documentation is important, especially if the asset is sold later.

Common Mistakes Families Make

1. Selling Property Without Understanding Basis

This can lead to:

• Incorrect tax reporting
• Overpaying taxes

2. Losing Valuation Records

Documentation matters years later when the asset is sold.

3. Gifting Appreciated Assets Too Early

This can unintentionally eliminate valuable tax benefits.

4. Assuming All Assets Qualify Automatically

Some assets receive different tax treatment.

Why Estate Planning Matters Here

A proper estate plan can help families:

• Preserve step-up opportunities
• Minimize unnecessary taxes
• Coordinate trusts and asset ownership properly

This is one reason estate planning is about much more than simply writing a will.

How The Lange Firm Helps Texas Families

At The Lange Firm, we help Texas families navigate estate planning and probate issues involving:

• Inherited property
• Trust planning
• Probate administration
• Asset transfers
• Tax-sensitive estate issues

Because even small planning decisions can create major financial consequences for future generations.

Final Takeaway

A step-up in basis can be one of the most valuable tax benefits available to families inheriting property.

👉 In simple terms:

• The asset’s tax basis is adjusted after death
• This can significantly reduce capital gains taxes
• Proper planning helps preserve those benefits

For families inheriting appreciated assets like homes or investments, understanding how step-up in basis works can make a substantial financial difference later on.