Because taxable capital-gain income is the selling price minus the basis, a high stepped-up basis can greatly reduce the beneficiary's taxable capital-gain income if the beneficiary sells the inherited asset.
Likewise, under § 1014(a), if a benefactor's adjusted basis in the property is higher than the fair market value, the beneficiary's basis will equal the fair market value of the property at the time the benefactor dies.
Because of this provision, any appreciation of the affected property that occurred during the decedent's lifetime will never be taxed.
Section 2032 provides an alternate method of determining the property's new basis.
If the property is not disposed of within six months of the decedent's death, the executor may elect to use the property's fair market value six months after the date of death but only if such an election results in a decrease in the value of the gross estate.
L. 111–312,[6] IRC § 1014(f)[7] provided that this section would not apply to decedents dying after December 31, 2009.
As of December 2010, the anticipated sunset provision was removed with the passage of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010".