Documenting Step-Up Basis: Protecting Your Inherited Assets from Tax Audits

Having date-of-death valuations protects you from IRS challenges years later when you sell. These documents should be coordinated with any estate tax return filed and kept permanently with your tax records as proof of your stepped-up basis.

Why this matters: The tax basis reset on inherited assets is only as valuable as your ability to prove it. Having documentation means you can confidently claim the stepped-up values when you sell, without worrying about the IRS defaulting to the original purchase price (which could mean taxes on decades of gains you don't actually owe).

What "good documentation" typically includes:

• Date-of-death account statements from brokerage firms
• A licensed appraisal for real estate, dated as of the date of death
• Business valuations, if applicable

What to do with it: Make sure your CPA has copies of everything. These documents should be kept permanently with your tax records, since the basis matters whenever you eventually sell, which could be years from now.

One thing to check: If an estate tax return was filed, the values reported there need to be consistent with what you claim on your own returns later. Your CPA can verify this alignment. If no estate return was required (most estates don't need one), your own documentation is what matters.