📉 The Step Up in Basis

One of the least understood tax benefits of home ownership is something called the step up in basis.

It rarely shows up in social media conversations about wealth.
But from a CFP perspective, it plays a meaningful role in long term planning, estate strategy, and intergenerational wealth.

This is not about gaming the system.
It is about understanding how the tax code actually works.

What “Basis” Means in Simple Terms

Your basis is essentially what you paid for an asset.

For a home, basis usually includes:

• The original purchase price

• Certain closing costs

• The cost of capital improvements such as renovations or additions

Example:
If you bought a home for $300,000 and put $50,000 into qualifying improvements, your basis is roughly $350,000.

Basis matters because it determines capital gains tax when an asset is sold.

Capital gain equals: Sale price minus basis.

What the Step Up in Basis Does

Under current U.S. tax law, when someone passes away, many inherited assets receive a step up in basis.

This means the basis is reset to the fair market value at the date of death, not what the original owner paid.

For heirs, this can significantly reduce or even eliminate capital gains taxes when the asset is later sold.

Home Ownership Example

Let’s walk through a clean example.

A nurse buys a home for $250,000 early in her career.
Over decades, the home appreciates and is worth $700,000 at the time of her death.

Without a step up in basis:

• The original basis would still be $250,000

• If heirs sold at $700,000, the taxable gain could be $450,000

With a step up in basis:

• The basis resets to $700,000

• If heirs sell shortly after inheriting, capital gains tax may be minimal or zero

This is one of the reasons real estate often plays a central role in estate planning conversations.

Why This Matters From a CFP Perspective

The step up in basis impacts:

• Estate planning decisions

• Whether assets are sold during life or held

• How wealth is transferred to children or other heirs

From a planning lens, it helps answer questions like:

• Should this asset be sold now or later

• Is gifting during life tax efficient

• How do different assets transfer at death

It is not just about tax savings.
It is about timing and structure.

How This Differs From Selling During Life

When you sell a primary residence during your lifetime, you may qualify for a capital gains exclusion.

Currently:

• Up to $250,000 of gains can be excluded for single filers

• Up to $500,000 for married couples filing jointly

Anything above that threshold may be subject to capital gains tax.

This means the decision to sell during life versus holding until death has tax consequences that vary by household, asset value, and goals.

This is where personalized planning matters.

Why Nurses Should Pay Attention to This

Nurses often build wealth quietly and slowly.

• Buying a home early

• Holding it for decades

• Paying it off over time

That long holding period increases appreciation and makes basis planning more relevant.

Understanding step up in basis helps nurses:

• Make informed decisions about keeping or selling property

• Understand the role of real estate in legacy planning

• Ask better questions when working with advisors

This is not about becoming a tax expert.
It is about knowing which levers exist.

Important Planning Caveats

A few critical notes:

• Step up in basis applies under current law, but tax laws can change

• It generally applies to assets included in a taxable estate

• Not all assets receive the same treatment

• State level tax rules may differ

This is why CFPs look at the full picture, not isolated tactics.

The Bigger Picture

The step up in basis highlights an important truth about financial planning.

Wealth building is not just about:

• Income

• Savings rate

• Investment returns

It is also about tax efficiency across a lifetime and beyond it.

Home ownership is not automatically the best choice for everyone.
But for families who already own, understanding how assets are taxed can protect more of what they built.

The Bottom Line

The step up in basis is one of the most valuable and least discussed benefits of long term asset ownership.

For homeowners, especially nurses who hold property over decades, it can significantly reduce capital gains taxes for heirs.

This is why CFP level planning looks beyond accumulation and into how assets are eventually transferred.

Knowing this concept does not mean you need to act on it today.
It means you are better equipped to plan intentionally.