Stepped-Up Basis
A stepped-up basis is a tax provision where the cost basis of an inherited asset is adjusted ('stepped up') to its fair market value at the date of the owner's death, potentially eliminating all accumulated capital gains and deferred taxes.
Understanding Stepped-Up Basis
A stepped-up basis is a tax provision where the cost basis of an inherited asset is adjusted ('stepped up') to its fair market value at the date of the owner's death, potentially eliminating all accumulated capital gains and deferred taxes. This is enormously powerful for NNN investors who have used 1031 exchanges over decades. For example, an investor who bought a $500K property in 2005 that is now worth $2M has $1.5M in deferred capital gains. If they sell, they owe ~$300K+ in taxes. But if they hold until death, their heirs inherit at the $2M stepped-up basis and owe zero capital gains tax. Combined with 1031 exchanges and depreciation, the stepped-up basis creates a 'buy, exchange, die' strategy that can defer and ultimately eliminate all income and capital gains taxes on NNN investments across a lifetime.
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Frequently Asked Questions
What is Stepped-Up Basis in commercial real estate?
A stepped-up basis is a tax provision where the cost basis of an inherited asset is adjusted ('stepped up') to its fair market value at the date of the owner's death, potentially eliminating all accumulated capital gains and deferred taxes.
Why is Stepped-Up Basis important for NNN investors?
Stepped-Up Basis is a key concept that affects property valuation, financing decisions, and investment returns in the triple net lease market. Understanding Stepped-Up Basis helps investors make informed acquisition and management decisions.
How does Stepped-Up Basis affect property value?
Stepped-Up Basis directly influences how commercial properties are valued, financed, and traded. Changes in Stepped-Up Basis can impact cap rates, NOI calculations, and overall investment performance for net lease properties.
Where can I learn more about Stepped-Up Basis?
NNNTripleNet's Learning Center offers in-depth guides covering Stepped-Up Basis and related CRE concepts. Visit the glossary for related terms and explore our calculators for practical application.