How Does Step-Up in Basis Work in New Mexico?

Inherited assets in New Mexico take a basis reset to fair market value on the date of death, and the gain on a later sale faces ordinary income tax at the state's regular rates, after the first $2,500 of gain is excluded.

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

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 New Mexico 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 New Mexico 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 ordinary income tax at the state's regular rates, after the first $2,500 of gain is excluded. New Mexico's top marginal income tax rate is 5.9%. 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 New Mexico layer. Short-term ordinary-income rates never apply.

Yes. New Mexico 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 New Mexico

Step-up in basis is a federal rule that applies to inherited assets in every state, including New Mexico. 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.

New Mexico taxes long-term capital gains as ordinary income — there is no preferential capital gains rate. Any gain remaining after the step-up faces ordinary income tax at the state's regular rates, after the first $2,500 of gain is excluded. New Mexico's top marginal income tax rate is 5.9%. The step-up is still valuable here: it reduces the gain on which both federal and state tax are calculated.

New Mexico 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 New Mexico revocable living trust with a community property provision preserves both the double step-up and probate avoidance.