Current Situation in Early 2026
In January 2026, the federal step-up in basis rule remains fully in effect. When a person dies, the cost basis of most appreciated assets — such as stocks, real estate, mutual funds, and closely held businesses — is reset to their fair market value on the date of death (or an alternate valuation date six months later).
This means that unrealized capital gains built up over decades disappear for income tax purposes. Heirs who later sell the asset pay capital gains tax only on appreciation that occurs after inheritance.
The One Big Beautiful Bill Act of 2025 preserved the full step-up without modification. Proposals to limit it to $1 million or $5 million per estate, or to replace it with carryover basis, did not pass. The estate tax exemption stays high at $13.99 million per person (indexed for inflation), so most estates avoid estate tax entirely.
Long-term capital gains rates continue at 0%, 15%, and 20%, plus the possible 3.8% net investment income tax. With stable rates and a reliable step-up, families with significant unrealized gains have a strong incentive to incorporate inheritance planning into their capital gains strategy.
Brokerage and advisory firms report rising client questions about basis tracking and gifting versus holding decisions. Many older investors, especially baby boomers in their 70s and 80s, hold low-basis assets acquired decades ago. Real estate purchased in the 1980s or 1990s and company stock from long careers often show gains of 500% to 1,000% or more.
Estate planning attorneys note increased activity in updating wills, trusts, and beneficiary designations to maximize the step-up benefit.
Predictions for Step-Up in Basis Planning in 2026
Step-up in basis planning centers on holding appreciated assets until death so heirs receive a reset cost basis and avoid tax on pre-death gains.
In 2026, this technique will become a core part of capital gains strategies for moderate- to high-net-worth families, especially those with concentrated or low-basis positions.
One central prediction: more investors will deliberately avoid selling highly appreciated assets during their lifetime, instead retaining them for transfer at death.
Advisors will run “hold versus sell” analyses showing that, for assets with large embedded gains, the tax savings from step-up often outweigh the benefits of diversification or immediate liquidity.
For example, a couple with $2 million in a single stock bought for $200,000 faces up to $360,000 in federal capital gains tax if sold today (at 20%). By holding until both pass away, heirs could sell immediately with little or no tax on the pre-death gain.
Financial planners will recommend joint titling or trust structures that allow a second step-up when the surviving spouse dies. Assets titled as joint tenants with right of survivorship or in certain revocable trusts receive a full reset at the first death and another at the second.
This double step-up can eliminate gains accrued over two lifetimes.
Wealthy families will use irrevocable trusts strategically. Assets placed in spousal lifetime access trusts (SLATs) or other completed-gift trusts remain outside the estate for estate tax but still qualify for step-up if the grantor retains certain powers or if structured properly.
Predictions include greater use of “swap powers” in grantor retained annuity trusts (GRATs) and intentionally defective grantor trusts (IDGTs) to substitute high-basis assets for low-basis ones inside the trust, positioning the low-basis assets for step-up inside the estate.
Retirement account planning will intersect here. Many advisors will suggest spending down IRAs and 401(k)s first in retirement (which receive no step-up) while preserving taxable brokerage and real estate assets for heirs.
This “spend taxable last” approach maximizes the step-up benefit.
Younger generations — Gen X and older millennials inheriting in the coming decade — will receive portfolios with freshly stepped-up basis, giving them flexibility to rebalance or sell without legacy tax burdens.
Data from estate planning firms early in 2026 will likely show increased trust funding and beneficiary reviews focused on basis optimization.
Overall, step-up planning will shift from a passive benefit to an active strategy, especially as the great wealth transfer from boomers accelerates.
Challenges and Risks
Step-up planning is powerful but not without downsides.
The biggest risk is longevity. If an investor holds concentrated positions waiting for step-up but lives much longer than expected, portfolio volatility can erode wealth. A major market drop late in life could reduce the inheritance significantly.
Liquidity needs pose another challenge. Health care costs, long-term care, or lifestyle expenses may force sales of appreciated assets, triggering taxes that step-up would have avoided.
Family dynamics complicate things. Heirs may have different risk tolerances or financial needs. Holding assets until death means the investor cannot oversee post-inheritance decisions.
Estate tax exposure exists for very large estates above the exemption. Including low-basis assets increases the taxable estate, potentially triggering 40% estate tax.
Changes in law remain a long-term risk. Although the step-up survived 2025 reforms, future Congresses could limit or eliminate it, especially if budget pressures rise.
Basis documentation can be difficult for old assets. Proving original cost basis decades later sometimes leads to IRS assumptions of zero basis, increasing taxable gain.
State estate or inheritance taxes in some jurisdictions add layers. A few states do not conform to federal step-up rules.
Emotional attachment to certain assets — family homes or founder stock — can cloud judgment.
Finally, opportunity cost: money locked in low-return or high-risk assets might grow faster elsewhere if sold and reinvested after paying tax.
Opportunities
The opportunities from thoughtful step-up planning are substantial.
Foremost is the complete elimination of capital gains tax on lifetime appreciation — often the largest tax savings available to moderate- and high-net-worth families.
This can preserve hundreds of thousands or millions in wealth across generations.
Compounding continues uninterrupted. Assets kept until death grow without the drag of annual or realization-based taxes.
Heirs receive a clean slate. A stepped-up basis allows immediate diversification or spending without tax friction.
Legacy goals strengthen. Families can pass businesses, real estate, or investment portfolios intact, supporting multi-generational wealth.
Integration with charitable giving works well. Assets held for step-up can later fund charitable remainder trusts or be donated with high basis, maximizing deductions.
Tax-efficient downsizing becomes possible. Older couples can sell a primary residence (up to $500,000 exclusion) and keep investment properties for step-up.
Overall, this legal mechanism supports efficient wealth transfer in a system designed to encourage it.
Conclusion
In 2026, step-up in basis planning will be a cornerstone capital gains strategy for families with appreciated assets. The full preservation of the rule in recent legislation, combined with the ongoing wealth transfer, will drive deliberate hold-to-death decisions.
Advisors and taxpayers will structure ownership and spending to maximize the reset benefit for heirs.
Risks around longevity, liquidity, and potential law changes require careful monitoring, but the opportunities for massive tax savings and generational wealth preservation remain compelling.
When used appropriately, step-up planning offers one of the most effective ways to minimize lifetime capital gains taxes legally.
Looking ahead, as long as the rule endures, it will continue shaping investment and estate decisions for decades.
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