Finance Maxxing
Capital Gains & Investments
Stepped-Up Basis
Inherited assets reset cost basis to date-of-death value.
When you inherit assets, the cost basis "steps up" to the fair market value on the date of death, eliminating all unrealized capital gains.
Example
| Original Owner | Heir | |
|---|---|---|
| Purchase price | $50,000 | — |
| Value at death | $500,000 | $500,000 (new basis) |
| Unrealized gain | $450,000 | $0 |
| Tax if sold at $500,000 | ~$107,100 | $0 |
Why This Matters
The stepped-up basis is the foundation of the buy-borrow-die strategy:
- Hold appreciated assets (don't sell → don't pay capital gains)
- Borrow against them for spending money
- At death, the basis steps up → gains are permanently eliminated
Current Law
The stepped-up basis is part of current tax law. Various proposals have sought to eliminate or limit it (e.g., Biden's proposal to tax gains at death above $1M), but none have been enacted as of 2025.
Note: The step-up also applies to real estate, business interests, and other inherited capital assets — not just stocks.
Sources
More in Capital Gains & Investments
Long-Term Capital Gains (LTCG)
Gains on assets held over one year, taxed at preferential rates.
Short-Term Capital Gains (STCG)
Gains on assets held one year or less, taxed as ordinary income.
Holding Period
How long you held an asset — determines LTCG vs. STCG.
Net Investment Income Tax (NIIT)
3.8% surtax on investment income for high earners.
Cost Basis
Original purchase price used to calculate gain or loss.
Capital Loss Deduction
Losses offset gains; up to $3,000/yr against ordinary income.
Tax-Loss Harvesting
Selling investments at a loss to offset gains.
Wash Sale Rule
Disallows loss if you repurchase same security within 30 days.
Qualified Dividends
Dividends taxed at LTCG rates instead of ordinary rates.