Stepped-Up Tax Basis on Inherited Securities
When a taxpayer dies, and his heirs inherit his securities, the tax laws give the new owners a tax break on appreciated securities. No matter what the deceased person paid for the securities, the heirs use the price of those securities on the deceased person’s date of death as their tax basis on the securities. This is referred to as a stepped-up basis.
For example, if your grandfather leaves you 10,000 shares of stock that he bought at a dollar a share, your tax basis is not your grandfather’s cost of a buck a share