How Does Step-Up in Basis Work in Wisconsin?

Estimate the new cost basis on inherited assets in Wisconsin under IRC § 1014, project federal and state capital gains tax if you sell, and see how much the step-up at death saves in taxes.

Settling the estate? Inventory and track every asset.

Frequently Asked Questions

When someone dies, the cost basis of property they leave to heirs is generally reset to the fair market value at the date of death under IRC § 1014. If the asset is later sold, capital gains tax is calculated using this stepped-up basis instead of what the original owner paid. The step-up is a federal rule that applies in every state, including Wisconsin.

State capital gains tax is separate from federal. Wisconsin excludes 30% of long-term capital gains from state taxable income. 30% of net long-term capital gain is subtracted before state ordinary rates apply. The remaining portion is taxed at the standard state income tax brackets.

For tax purposes, inheriting assets is usually better than receiving them as a lifetime gift. Inherited property gets a step-up in basis to fair market value at death under IRC § 1014; gifted property carries the donor's original basis under IRC § 1015. If the donor bought stock at $10,000 that's now worth $200,000, a recipient who sells after a gift owes capital gains tax on the full $190,000 of appreciation. The same recipient inheriting the same stock owes tax only on appreciation after the date of death. A revocable living trust preserves the step-up — assets held in the trust during life still receive the basis adjustment at death.

No short-term gain applies. IRC § 1223(9) treats inherited property as long-term from the date of death, so a quick sale by an heir in Wisconsin still receives federal long-term rates of 0%, 15%, or 20% (IRC § 1(h)). The rule keeps the step-up's value intact even when the heir wants to liquidate quickly.

For publicly traded securities, the executor or beneficiary uses the average of the high and low trading prices on the date of death (IRS Pub. 551). For real estate, a qualified appraisal as of the date of death is the standard. For privately held business interests, a formal valuation by an independent appraiser is typically required, especially if a federal estate tax return (Form 706) is filed. Keep these valuations in your records — you'll need them when you eventually sell to substantiate your basis on Schedule D.

Under IRC § 2032, an executor may elect the alternate valuation date (AVD): estate assets still held six months after the date of death are revalued as of that date, while anything distributed, sold, or exchanged during those six months is valued as of the date of that disposition. The election is all-or-nothing — it must apply to the whole estate — and it is only available when it reduces both the gross estate and the resulting federal estate tax. If AVD is elected, the heir's stepped-up basis tracks the AVD value rather than the date-of-death value. The election is only relevant on estates large enough to require a Form 706, currently those over $15 million per individual.

Community property in Wisconsinproduces a "double step-up" at the first spouse's death. IRC § 1014(b)(6)treats the entire community asset — both halves — as receiving a basis reset to fair market value. In separate-property states only the decedent's half is adjusted, leaving the survivor with the original basis on the other half. For couples with substantially appreciated assets (real estate, long-held stock, a business interest), the difference can be hundreds of thousands of dollars in capital gains tax avoided.

IRC § 1014(e)carves out one-year deathbed transfers from the step-up rule. If you gift appreciated property to someone, they die within one year, and the property passes back to you or your spouse, the heir's basis is the decedent's adjusted basis — not the date-of-death fair market value. The provision only fires on that specific loop-back fact pattern; gifts to a dying relative whose estate goes to other heirs are unaffected.

Step-Up in Basis in Wisconsin

Under the federal step-up rule, the cost basis of inherited property is reset to fair market value on the date of death. Wisconsin residents inheriting appreciated stock, real estate, or business interests benefit from this the same way residents of every other state do — the rule is federal. State tax on any gain after the step-up is a separate, state-by-state question.

Wisconsin excludes 30% of net long-term capital gains from state taxable income. After applying the step-up, the remaining gain is reduced by 30% before state ordinary rates apply. Combined with the step-up itself, Wisconsin residents often face a meaningfully lower effective rate on inherited-asset sales than residents of states without an exclusion.

Because Wisconsin is a community property state, the surviving spouse benefits from the IRC § 1014(b)(6) double step-up: both halves of community property receive a fair-market-value basis when the first spouse dies. Pairing this with a Wisconsin revocable living trust keeps the double step-up while avoiding probate on the way to the surviving spouse and the next generation.