How Step-Up in Basis Rules in Wisconsin Can Reduce Capital Gains Taxes

June 11, 2026

When someone inherits stocks, real estate, or other appreciated assets, one of the most important tax benefits available under federal law is the “step-up in basis.” This rule can significantly reduce — or even eliminate — capital gains taxes on inherited property. In Wisconsin, marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law. laws can create an even greater advantage through what is sometimes called a “double step-up” in basis.

What Is a Step-Up in Basis?

In tax law, your cost basis is generally the price you paid for an asset. When you sell that asset, you owe capital gains tax on the difference between the sale price and your basis.

However, when an heir receives an asset from a decedentA person who has died. In the Wisconsin probate and estate planning context, it usually refers to the person who created the Will or Trust after he or she has died., the cost basis is “stepped up” to the fair market value (FMV) of the asset on the date of the decedent’s death. This effectively wipes out the capital gains tax on all appreciation that occurred during the original owner’s lifetime.

The IRS provides additional information about  how basis is determined for tax purposes.

Example: Step-Up in Basis for Inherited Stocks

Imagine your father bought 1,000 shares of a blue-chip stock in 1990 for $10,000. By the time of his passing in 2025, those shares are worth $150,000.

• If he sold the shares before death: He would owe capital gains tax on a $140,000 profit which could cause state and federal tax due of more than $35,000.
• If you sell the shares after his death: Your new basis is $150,000. If you sell the shares a short time after his death for $150,000, there willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be no capital gain tax due because of the stepped-up basis. This willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. save the family $35,000 or more in taxes.

Example: Selling an Inherited House

The same rule applies to real estate. If you inherit your mother’s home, which she bought for $100,000 and is now worth $500,000, your new basis is $500,000. You are able to sell the home after her death, and avoid tax on $400,000 of capital gain. This could be more than $100,000 in tax savings.

Does the Homestead Exclusion Apply to Inherited Property?

It is important to correct is a common misconception regarding the Homestead Exclusion. Living homeowners can often exclude up to $250,000 (single) or $500,000 (married) of gain from the sale of their primary residence. As an heir, you do not automatically receive this exemption. You only receive the stepped-up basis. To claim the homestead exemption yourself, you would typically need to move into the home and meet the IRS “two-out-of-five-year” residency requirements.

Wisconsin’s Marital Property Advantage: The Double Step-Up in Basis

Wisconsin is a marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law. state. Wisconsin’s marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law. system creates estate-planning opportunities that may not be available in many other states. For our clients here in Wisconsin, this is a unique benefit.

In many states other than Wisconsin, when a spouse dies, only the decedent’s half of a joint asset gets a stepped-up basis. The surviving spouse’s half keeps its original, lower basis.

In Wisconsin, if an asset is classified as marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law., it receives a “double step-up” in basis when the first spouse dies. This means the entire asset—both the deceased spouse’s half and the surviving spouse’s half—resets to the current market value.

Frequently Asked Questions About Step-Up in Basis

Do beneficiaries pay capital gains tax on inherited property?

Generally, inherited property receives a step-up in basis to the fair market value as of the date of death, which can significantly reduce capital gains taxes.

Does Wisconsin have inheritance tax?

Wisconsin does not currently impose a state inheritance taxWisconsin no longer has an “inheritance” tax., though federal capital gains tax rules may still apply when inherited assets are sold.

What is a double step-up in basis?

In Wisconsin, marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law. may receive a full basis adjustment when the first spouse dies, potentially reducing future capital gains taxes for the surviving spouse.

Does a retirement account such as an IRA or 401(k) receive a step-up in basis?

No, a tax-deferred retirement account such as a traditional IRA or 401(k) does not receive a step-up in basis at death.

Does step-up in basis apply to houses?

Yes. Real estate, including a primary residence, may receive a step-up in basis when inherited.

Take the Next Step

Estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. More decisions can have a major impact on future capital gains taxes for your family. Wills, trusts, and marital propertyA law for married persons with respect to ownership and rights in and to assets, property, and income during life and upon death of a married couple. Marital Property law is unique to the State of Wisconsin, but is a form of and based upon many principals contained in Community Property law. agreements should be carefully drafted to preserve valuable step-up in basis opportunities under Wisconsin law.

If you would like to review your estate plan or discuss inherited property and tax planning strategies, contact Wokwicz Law Offices LLC.