What is involved in a step-up in basis?

When assets are inherited, the value of the asset may increase or decrease, depending on the type of asset. In Hawaii, a step-up in basis is when the asset’s value is adjusted to its current fair market value at the time of inheritance. This adjustment will help the inheritor avoid paying capital gains taxes on the appreciated value of the asset. When a step-up in basis is applied, the inherited asset’s basis, or its fair market value, is set at the time of death of the previous owner. This value is based on the current market value, not the original purchase price, and will be used to establish the asset’s adjusted basis for any capital gains and losses tax calculations. If the asset is later sold, the gain or loss is determined based on the difference between the sale price and the adjusted basis. Without a step-up in basis, the inheritor would have to use the previous owner’s original purchase price as the basis when calculating capital gains. This could result in a higher tax liability for the inheritor. Step-up in basis is a beneficial way to pass on assets to heirs with minimal tax liabilities. In Hawaii, at the death of the former owner, the asset’s value is adjusted to the current market value, which is then used as the adjusted basis for capital gains and losses calculations.

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