How Does Step-Up in Basis Work in Arizona?

Inherited assets in Arizona take a basis reset to fair market value on the date of death, and the gain on a later sale faces state tax on the 75% of long-term gain left after a 25% exclusion, only for assets acquired after December 31, 2011.

Your State

Fair Market Value at Death

What the person who died paid for it

Sale Price

Who owned it?

The person who died owned it aloneWith you, as spousesWith someone else

Your Filing Status

Your Other Taxable Income

Tax Year of the Sale

What year did the person who died buy it?

Calculate the step-up in basis

Enter the asset's value when the person died, what they paid for it and your own tax details to see the new basis, the federal and Arizona tax on a sale and what the step-up saves.

Examples:

General information about stepped-up basis and capital gains tax on inherited property, not tax or legal advice. Basis follows IRC § 1014. Consult a licensed tax professional for tax questions. Data verified Sep 15, 2026

When someone dies, the cost basis of the property they leave is reset to its fair market value on the date of death under IRC § 1014. A later sale is taxed on the gain above that stepped-up basis, not above what the original owner paid, so the appreciation of the owner's lifetime is never taxed. The rule is federal and applies in Arizona as in every state.

State capital gains tax is a separate layer from the federal tax. After the step-up, the gain on a later sale faces state tax on the 75% of long-term gain left after a 25% exclusion, only for assets acquired after December 31, 2011. The step-up still matters: it sets the gain on which both the federal and the state tax are figured.

For the capital gains tax, inheriting is usually better than receiving a lifetime gift. Inherited property takes a basis reset to fair market value at death under IRC § 1014; a gift carries the donor's original basis under IRC § 1015. Stock bought for $10,000 and worth $200,000 carries a $190,000 gain to the recipient of a gift and none to an heir. Property held in a revocable living trust still receives the step-up at the grantor's death.

No. Inherited property is treated as held long-term from the date of death under IRC § 1223(9), whatever the actual holding period, so a sale the day after the inheritance is taxed at the federal long-term rates of 0%, 15%, or 20% on any gain above the stepped-up basis, plus the Arizona layer. Short-term ordinary-income rates never apply.

Yes. Arizona is a community property state, so at the first spouse's death both halves of community property take a new basis at fair market value under IRC § 1014(b)(6), not only the decedent's half. In a separate-property state the survivor's half keeps its original basis. The surviving spouse can sell soon after the death with little or no capital gains tax on the appreciation of the marriage.

Step-Up in Basis in Arizona

Step-up in basis is a federal rule that applies to inherited assets in every state, including Arizona. When someone dies, the cost basis of property they leave to heirs is reset to fair market value on the date of death. If the heir later sells, capital gains tax is calculated against this stepped-up basis instead of what the original owner paid. For appreciated assets held for years or decades, the step-up can eliminate most or all of the gain.

Arizona excludes part of net long-term capital gains from state taxable income: after the step-up, the remaining gain faces state tax on the 75% of long-term gain left after a 25% exclusion, only for assets acquired after December 31, 2011. Combined with the step-up itself, Arizona residents often face a meaningfully lower effective rate on inherited-asset sales than residents of states without an exclusion.

Arizona is a community property state, which means surviving spouses get a double step-up under IRC § 1014(b)(6) — both halves of community property reset to fair market value at the first spouse's death, not just the deceased's half. This is a significant planning advantage compared to separate-property states. A Arizona revocable living trust with a community property provision preserves both the double step-up and probate avoidance.