How to Document the Step-Up in Basis for Inherited Property in Georgia

The step-up in basis is the single most valuable tax provision available to beneficiaries of a Georgia estate — and the most commonly underdocumented. Under Internal Revenue Code Section 1014, the tax basis of property inherited at death is generally adjusted to its fair market value on the date of death. Some assets follow different basis rules. This eliminates decades of capital gain from a single death. But it only works if you can prove the value on the right date, using the right documentation, gathered during the right window.

For most Georgia beneficiaries selling an inherited home or investment portfolio, proper step-up documentation is the difference between owing zero and owing tens of thousands of dollars in capital gains taxes.

What the Step-Up in Basis Actually Does

When a person dies owning property, the property does not transfer to heirs at the original purchase price. It transfers at fair market value as of the date of death. The heir's basis — the starting point for calculating capital gains — is that date-of-death value, not what the deceased originally paid.

Example from Georgia real estate:

• Parent bought a home for $150,000
• At death, the home was worth $400,000
• The heir sells it for $450,000
• Without step-up: taxable gain = $300,000 ($450,000 - $150,000)
• With step-up: taxable gain = $50,000 ($450,000 - $400,000)

The step-up removes $250,000 of pre-death appreciation from the heir's gain calculation. The documentation requirement that makes this possible is establishing the $400,000 date-of-death value.

The same math applies to investment accounts, closely held business interests, and many other appreciated assets.

Who Needs to Document the Step-Up (and When)

Documentation should be gathered during early estate administration, while the date-of-death value can still be cleanly established. The documentation requirement falls on:

• The executor or administrator, who needs the values for the estate inventory filed with the Georgia probate court (required within six months of appointment)
• Beneficiaries receiving inherited assets, who need proof of basis before they sell
• Anyone preparing the estate's final fiduciary return (Form 1041/Form 501), since asset valuations affect the return

Waiting too long creates problems. Appraisers become harder to locate after the property changes hands. Brokerage statements showing date-of-death values become harder to obtain months later. Real estate values from the correct date are harder to establish retroactively with precision.

What Documentation Is Required for Each Asset Type

Residential and Commercial Real Estate

A formal appraisal from a licensed appraiser is the gold standard for real property step-up documentation. The appraisal must use the date of death as the effective date of value. It does not need to be completed on the date of death — appraisers can perform retrospective appraisals using market data from that date — but the documentation must clearly tie the value to that specific date.

Georgia-specific note: Even if the property is transferring to heirs as a distribution and is exempt from the Georgia real estate transfer tax, the PT-61 Real Estate Transfer Tax Declaration still must be filed through the GSCCCA e-filing portal. The PT-61 is completed before recording the executor's deed. The specific exemption code for estate-to-heir transfers must be claimed. The appraisal you obtain for step-up purposes is also the value that supports the PT-61 declaration.

For jointly held real estate (tenancy in common or joint tenancy), only the deceased's proportionate share receives a step-up. The surviving joint tenant's share retains its original basis. Georgia is a common-law property state, not a community property state — the community property rules that allow a 100% step-up for both spouses' shares do not apply here.

What to get: A written appraisal from a licensed Georgia real estate appraiser with an effective date matching the date of death. Retain this permanently — you or the beneficiary will need it at the time of sale.

Brokerage and Investment Accounts

For publicly traded securities, request an official date-of-death cost basis statement or estate valuation letter from the custodian. Most major custodians (Fidelity, Vanguard, Schwab, Merrill Lynch) will provide one upon request. This is the documentation you need.

Contact the brokerage as soon as possible after the death. Request:

• A date-of-death account statement showing all holdings and values
• A formal estate valuation letter if available, which states the fair market value of each position as of the date of death

Some custodians automatically generate these when notified of a death. Others require a written request with the death certificate and letters of appointment. Do not wait until you are ready to distribute or sell — the request takes time and date-of-death pricing can become harder to reconstruct.

What to get: Official date-of-death cost basis statement or estate valuation letter from each custodian.

Retirement Accounts (IRA, 401(k), 403(b))

Retirement accounts do not receive a step-up in basis in the traditional sense because they were never subject to capital gains — distributions are taxed as ordinary income. The value of an inherited retirement account is included in the gross estate for estate tax purposes (Form 706), but the basis issue is different: the beneficiary owes income tax on distributions, not capital gains.

Step-up documentation does not eliminate taxation on inherited retirement accounts. This is a common misunderstanding that a guide clarifies.

Closely Held Business Interests

If the estate includes an ownership stake in a closely held LLC, S-corporation, or partnership, the step-up in basis calculation requires a formal business valuation. This is a specialized appraisal performed by a Certified Business Valuator (CBV) or Certified Valuation Analyst (CVA). The value must be established as of the date of death using appropriate valuation methodologies.

Business valuations are expensive ($3,000 to $10,000+ depending on complexity) and take time. Begin this engagement immediately after the death. Delays complicate the valuation and can create disputes if the business changes materially during administration.

Personal Property (Jewelry, Art, Collectibles, Vehicles)

High-value personal property requires a formal appraisal from a qualified appraiser — someone with recognized credentials for the specific asset type (a Certified Personal Property Appraiser for general assets, a gemologist for jewelry, an art appraiser for fine art).

For vehicles, the date-of-death fair market value is typically established using Kelley Blue Book, NADA Guides, or a written appraisal from a dealer. This value matters for both step-up documentation and for the Title Ad Valorem Tax (TAVT) calculation when the vehicle is transferred. The 0.5% family inheritance TAVT rate is calculated on fair market value, as is the default 7% rate — so accurate documentation matters in both directions.

The Appraisal Window You Cannot Ignore

Appraisals for step-up purposes do not have a hard statutory deadline separate from the estate administration timeline. But there are practical and legal reasons not to delay:

• The Form 1041 / Form 501 fiduciary return may require asset values; if the estate's tax year closes, returns are due
• The six-month inventory deadline: Georgia requires the executor to file an inventory of estate assets with the probate court within six months of appointment — this requires valuations
• Sale of inherited property: If beneficiaries sell within a year of death and the step-up is challenged by the IRS, a retroactive appraisal carries less credibility than one performed contemporaneously

The practical guidance: get real estate appraisals and brokerage statements as early as practical during estate administration. Closely held business valuations should begin as soon as the appraiser can be engaged. Obtain personal property appraisals before distributing or selling items.

What Georgia's Common-Law Property Rules Mean for Joint Assets

Unlike community property states (California, Arizona, Texas, and others), Georgia is a common-law property state. This distinction matters for jointly held assets:

• Joint tenancy with right of survivorship: The deceased's share receives a step-up. The surviving spouse's share retains its original basis. A $400,000 house owned jointly 50/50 results in a step-up on the $200,000 share (to date-of-death value) and no step-up on the surviving spouse's $200,000 share.
• Tenancy in common: Each owner's share independently receives a step-up at death.
• Sole ownership: Full step-up to date-of-death value.

This is one of the critical differences between Georgia estates and community property state estates, where both spouses' shares often receive a full step-up. Georgia executors and beneficiaries need to understand this distinction before assuming a complete basis reset on jointly held property.

Common Mistakes That Destroy the Step-Up

Selling before documenting the basis. A beneficiary who sells an inherited property without obtaining credible date-of-death valuation documentation may have difficulty substantiating the step-up, and the reported basis may be challenged.

Endorsing or modifying assets before establishing basis. Depositing inherited investment accounts into a joint brokerage account before obtaining the date-of-death statement complicates the valuation. Handle accounts separately during estate administration.

Assuming all assets receive the step-up. Retirement accounts do not. Income in respect of a decedent (IRD) — income that the decedent was entitled to but had not yet received — does not receive a step-up. Gifts made within a certain period before death may be subject to different rules.

Using listing price instead of appraised value. The Zillow estimate or a recent listing price is not a formal appraisal and is weaker support for the reported basis. A professional appraisal with the correct effective date is the strongest support for real property.

Tradeoffs

Getting a formal appraisal has a cost — typically $400 to $800 for residential real estate, $3,000 to $10,000+ for business interests. Against a potential $50,000+ capital gains tax savings, this cost is negligible.

Delays in documentation increase complexity and cost. Appraisers performing retrospective work charge more and have less precise data. Documentation requests from brokerages become slower after accounts are transferred or closed.

A CPA needs your step-up documentation to prepare returns. The basis documentation you gather is what your CPA uses to complete Form 1041 and to advise beneficiaries on their personal capital gains reporting. Arriving at a CPA meeting without this documentation results in billable time spent locating it.

FAQ

Do I pay Georgia capital gains tax when I sell an inherited house?

Georgia follows federal capital gains rules for inherited property. With a step-up in basis to the date-of-death fair market value, if you sell the inherited property soon after inheriting it (while it is worth approximately its date-of-death value), your taxable gain is minimal or zero. Georgia's flat income tax rate of 4.99% applies to any taxable gain realized on the sale. The step-up itself reduces or eliminates the gain subject to that rate.

Does the step-up in basis apply if I hold the property for several years after inheriting it?

Yes, but the taxable gain from the date of inheritance forward is still taxable. If you inherit a house at a step-up basis of $400,000 and sell it five years later for $500,000, your capital gain is $100,000 — taxed at applicable rates. The step-up eliminates the pre-death appreciation; post-inheritance appreciation remains taxable.

Who hires the appraiser — the executor or the beneficiaries?

The executor typically commissions the appraisals as part of estate administration. The cost is an allowable estate expense. Once the appraisal is completed, the executor provides the documentation to beneficiaries along with the inherited assets. If the executor does not arrange appraisals, beneficiaries should request the documentation before accepting the inheritance or should arrange their own appraisals before selling.

Does Georgia require the step-up basis to be reported anywhere officially?

The step-up basis is established through your documentation but is not reported on a Georgia-specific return. It is reported on Schedule D of the federal Form 1040 when the asset is sold, and by the estate on Form 1041 for assets sold during administration. The Georgia Form 500 follows federal capital gains treatment. The documentation itself — appraisals, brokerage statements — is retained in your records, not submitted with any return unless the IRS requests supporting documentation.

What if there was no appraisal and the property has already been sold?

If the property was sold before a formal appraisal was obtained, a retroactive appraisal (also called a retrospective appraisal) can still be performed. A licensed appraiser uses historical market data to establish what the property was worth on the date of death. These appraisals carry less weight with the IRS than contemporaneous appraisals but are significantly better than no documentation at all. Engage a qualified appraiser immediately if this situation applies.

Does the step-up basis apply to gifts the deceased made before death?

No. Property gifted before death carries the donor's original basis to the recipient — there is no step-up. Only property inherited at death receives the Section 1014 step-up. This is an important distinction if a family made significant gifts in the years before death expecting basis planning benefits that do not actually apply to gifts.

The Georgia Final Tax and Estate Tax Guide includes a step-up in basis documentation worksheet, worked examples using Georgia real estate values, and a complete explanation of how common-law property rules affect jointly held assets — giving executors and beneficiaries exactly what they need to capture this tax benefit correctly.

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