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Most people don’t think about capital gains taxes when planning their estate. But there’s a simple rule that can make a big difference for your family: the step-up in basis. With the right planning, this tax rule can help your loved ones inherit property without getting stuck with a large tax bill later. Here, we take a closer look at what it is and how we can use it to your advantage.
What Is the Step-Up in Basis?
When you sell property, stocks, or other investments, you may owe capital gains tax. That tax is based on the difference between the asset’s purchase price (known as its basis) and the price you sell it for.
Here’s where the step-up in basis comes in: If you inherit an asset after someone passes away, the basis gets “stepped up” to its fair market value on the date of death. That means:
- If your parent bought a house for $100,000 and it’s worth $300,000 when they pass away, your basis is $300,000.
- If you sell it for that amount, there’s no capital gain—and no tax owed on the appreciation.
This applies to a wide range of assets, including:
- Real estate
- Stocks and bonds
- Business interests
- Artwork and collectibles
The step-up in basis is a federal rule that applies regardless of the size of the estate, which means it benefits many families, not just the wealthy.
Why the Step-Up in Basis Matters in Louisiana
Here in Louisiana, we often work with families who have owned the same property for generations. Whether it’s a home, a farm, or a small business, those assets tend to grow in value over time. Without the step-up in basis, your heirs could end up owing thousands in taxes if they decide to sell.
There’s also an added opportunity for married couples in Louisiana. Because we are a community property state, there’s a chance to receive a double step-up in basis. That means both halves of the property—yours and your spouse’s—can be stepped up to current market value when one spouse passes away. This can significantly reduce or eliminate capital gains taxes if the surviving spouse later sells the property.
How to Plan Around the Step-Up in Basis
The step-up in basis is a powerful tool, but to use it well, you need the right strategy. Here are a few ways we help clients make the most of it:
- Hold on to appreciated assets instead of giving them away during your lifetime. Gifts transfer the original basis, not the stepped-up one.
- Check how your property is titled. Whether the property is community or separately can affect whether the asset qualifies for a full step-up.
- Review business structures. Sometimes holding real estate or investments in a business entity (like an LLC) can complicate things. The setup has to be done thoughtfully.
Each situation is different, so it’s worth sitting down to go over your assets and your long-term goals.
What Can Go Wrong Without a Plan
If you don’t have a clear estate plan in place, your family could end up paying more in taxes than necessary. Here are some common mistakes we’ve seen:
- Gifting property during your lifetime instead of leaving it through your estate.
- Failing to get an appraisal or documentation of the asset’s value at the date of death.
- Using the wrong type of trust, which might block the step-up in basis.
- Titling property in a way that limits tax advantages for your spouse or children.
- Waiting too long to update your plan after buying a new home, investing in property, or starting a business.
These kinds of oversights are preventable, and we’re here to help you avoid them.
How We Help Louisiana Families
At Kallio Law Firm, LLC, we help families across Louisiana put together estate plans that make sense. We’ll look at the assets you’ve worked hard to build, discuss what matters most to you, and recommend strategies that help reduce unnecessary tax burdens. Whether you’re planning for your children, your spouse, or a charitable gift, we’ll help you preserve as much as possible.
Preserve More for the People You Love
The step-up in basis is one of the most effective tax-saving tools available in estate planning. If used wisely, it can help your family keep more of what you’ve worked for. To learn how this rule applies to your situation, contact Kallio Law Firm, LLC. We’ll help you put a plan in place that protects your legacy—and keeps more money in your family’s hands.
