How This Is Calculated
Basis is the starting point for measuring gain: the price paid plus improvements. Gain on a sale is the sale price minus the basis. The calculator works out the basis after a death under the federal rules, then estimates the tax on a sale at the value you entered, once with the original basis (no step-up) and once with the basis after the death.
Basis after a death
- Property included in the estate of the person who died takes its value on the date of death as the new basis. The same rule lowers the basis when the value has dropped (IRC §1014(a); IRS Publication 551).
- Sole name and a revocable trust: the whole property is in the owner's estate, so the whole property is stepped up. A revocable trust neither adds nor removes the step-up, because the owner keeps the power to revoke it (IRC §1014(b)(2); IRC §2038).
- Home in one spouse's name: if the spouse on title dies, the whole home is stepped up. If the spouse who is not on title dies, the calculator assumes the home is the other spouse's separate property and the basis does not change. Check that assumption: property bought during the marriage while living in California is presumed to be community property even when only one spouse is on the deed (Family Code §760). If the home is community property, both halves are stepped up at either spouse's death.
- Community property, including community property in a trust: both halves are stepped up at the first death, the survivor's half too (IRC §1014(b)(6)). Community property with right of survivorship (Civil Code §682.1) is community property that passes like joint tenancy. We found no IRS ruling on this California form of title. The calculator assumes the IRS treats it as community property, because state law calls it community property; that is an assumption, so confirm it with a tax adviser.
- Joint tenancy between spouses: half the value is included in the estate of the spouse who dies, whoever paid (IRC §2040(b)). The survivor's basis is the original cost of the survivor's half plus the date of death value of the other half. This half rule does not apply when the surviving spouse is not a U.S. citizen (IRC §2056(d)); the calculator does not cover that case. A spousal joint tenancy created before 1977 can be different: a federal appeals court held that the whole value can be included in the estate of the spouse who paid for it, which gives a full step-up (Gallenstein v. United States, 975 F.2d 286 (6th Cir. 1992)). If your joint tenancy is that old, ask a tax adviser.
- Separate property a couple owns half each in their trust: only the half that belonged to the spouse who died is in that spouse's estate, so the arithmetic is the same as joint tenancy between spouses.
- Joint tenancy with someone who is not a spouse: the estate includes the whole value except the part the survivor shows the survivor paid for (IRC §2040(a)). The survivor's basis is the survivor's share of the original cost plus the deceased owner's share of the date of death value. Simplification: the calculator uses the percentage you enter as the deceased owner's share and ignores depreciation, which Publication 551 subtracts for rental or business property.
- Last owner's death: whatever the form of title, the property is then in the last owner's estate and is fully stepped up. The calculator assumes the value then equals the value you entered.
- California uses the same basis, because it follows the federal rules on gain and loss (Revenue and Taxation Code §18031).
Tax on a sale (an estimate)
- Federal long-term capital gains are taxed at 0%, 15% or 20%, depending on taxable income. You pick the rate; the calculator applies it to the whole gain. 2026 amounts are in the table below (Rev. Proc. 2025-32).
- Net investment income tax: 3.8% on investment income above $200,000 of modified adjusted gross income for a single filer or $250,000 for a married couple filing jointly. If you tick it, the calculator applies it to the whole gain (IRS, net investment income tax).
- California has no lower rate for capital gains; they are taxed as ordinary income. The top bracket rate is 12.3%, and a further 1% applies to taxable income over $1,000,000, for 13.3% at the top. The rates offered are the 2025 bracket rates (FTB, capital gains; FTB 2025 tax rate schedules).
- Not included: selling costs, depreciation recapture, property the person who died received as a gift within one year before death that goes back to the giver (no step-up, IRC §1014(e)), the home sale exclusion for an owner who lived in the home (IRC §121), the federal estate tax, and any change in value between the death and the sale. A tax preparer should figure the actual tax.
Frequently Asked Questions
Does a living trust give my heirs a step-up in basis?
A revocable living trust neither adds nor removes the step-up. Property in your revocable trust is still treated as yours for tax purposes, so it is included in your estate at death and your heirs take the value on the date of death as their basis, the same as if the property were in your own name. What the trust adds is that the property passes without probate.
Why does community property matter for a married couple?
When a spouse dies, both halves of community property take a new basis equal to the value at death, the surviving spouse's half included. Joint tenancy between spouses steps up only the half that belonged to the spouse who died. On a home bought decades ago, that difference can mean a large taxable gain if the surviving spouse sells. A married couple's trust can hold the home as community property.
What happens with joint tenancy with a child or a friend?
For joint tenants who are not married, the deceased owner's estate includes the share of the property that owner paid for, and that share gets a new basis. The rule starts from the assumption that the deceased owner paid for all of it; the survivor has to show what the survivor contributed. If the survivor paid nothing, the whole property usually takes the value at death as its basis.
Is the step-up the same for California income tax?
Yes. California follows the federal rules for figuring gain and loss, so the basis after death is the same on the California return. California taxes capital gains as ordinary income, with no lower rate for long-term gains.
Can the basis go down instead of up?
Yes. The rule sets basis at the value on the date of death whether that is higher or lower than what the owner paid. If the property is worth less than its original cost, the basis steps down and the heir cannot use the owner's loss.
