Under current tax law,a tax benefit granted to one who inherits real property, allowing an increase in basis up to the fair market value of the property as of the date of death. Normally,a person receiving a gift has the same basis in the property as the donor.
Example: If Mary buys a parcel of land for $10,000 and then 20 years later gives it to Jamie, Jamie's basis is $10,000. If Jamie sells the land, the taxable gain is the difference between the sales price, which could be many millions of dollars, and the $10,000 basis. If, however, Jamie received the same property under Mary's will, the property will be valued as of the date of death (or 6 months afterward, depending on which election is selected) and that value will be Jamie's basis. As a result, if the property is worth $1,000,000 on the date of Mary's death and Jamie sells it for $1,000,000, Jamie has no taxable gain. Mary's estate, on the other hand, could have a sizable estate tax it will have to pay. Efforts to repeal estate taxes are usually accompanied by less well-publicized compromises to also repeal the stepped-up basis rules.