How the Step-Up in Basis Can Save Your Family Thousands in Taxes

There’s a tax rule that can save families thousands of dollars, but many people don’t learn about it until it’s too late.

It’s called the step-up in basis, and it can dramatically reduce—or even eliminate—capital gains taxes for your heirs.

Here’s the basic idea: when you sell an investment, you typically owe taxes on the gain—the difference between what you paid and what it’s worth today. But when that same investment is passed to your heirs, the IRS often resets the cost basis to its value at the time of death.

That means years—or even decades—of accumulated gains may never be taxed.

In this video, we explain:

• What cost basis is and how capital gains taxes work
• The difference between gifting assets and passing them through inheritance
• How the step-up in basis rule applies
• Which assets qualify—and which do not

This is one of the most important—and most misunderstood—rules in financial planning. It’s also why decisions around selling, gifting, or holding investments later in life can have a lasting impact on your family.

If you’d like help building a more tax-efficient legacy strategy, Hanover Advisors can help you evaluate your options and plan ahead.