Stepped-Up Basis
The tax rule that resets an heir's cost basis in inherited minerals to fair-market value on the date of death, cutting capital gains tax on a later sale.
Stepped-up basis is the federal income-tax rule that resets the cost basis of inherited property, including minerals and royalties, to its fair-market value as of the decedent's date of death. Instead of inheriting the original owner's often near-zero basis, the heir starts fresh at the date-of-death value, which can dramatically reduce the capital gains tax owed when the interest is later sold.
For example, if a grandparent acquired minerals decades ago for almost nothing but they were appraised at a meaningful value at death, an heir who later sells near that appraised value owes tax on little or no gain. The step-up is one reason inherited minerals are frequently more tax-efficient to sell than minerals bought outright.
Capturing the step-up usually depends on getting a defensible date-of-death valuation, often via a qualified mineral appraisal, and on how the asset was held. Interests in certain irrevocable trusts may not qualify. Rules change; treat this as general information, not tax advice, and confirm with a CPA. See our guide to inherited mineral rights.