Stepped-Up Basis on Inherited Property in West Virginia

If you inherit property in West Virginia and plan to sell it, you need to understand one of the most valuable tax provisions in the Internal Revenue Code before you do anything else. The "step-up in basis" rule under IRC § 1014 can eliminate what would otherwise be a devastating capital gains tax bill—but only if you understand how it works and take the right steps to document the new basis at the time of inheritance.

For West Virginia families who have held land, mineral rights, or timber properties for generations, this rule is not just a tax technicality. It is the difference between keeping a multi-generational inheritance intact and watching a large portion of it evaporate to taxes the moment you sell.

What "Basis" Means and Why It Matters

Basis is the starting point for calculating capital gains. When you sell a capital asset, you pay capital gains tax on the difference between what you received (the sale price) and what you paid for it (your basis). If you bought a house for $80,000 and sell it for $300,000, your gain is $220,000, and you owe capital gains tax on that amount.

When you inherit an asset rather than buying it, the normal rules change. You did not pay for the asset—you received it—so what is your basis? This is where the step-up comes in.

How the Step-Up in Basis Works

Under IRC § 1014, when you inherit property, your basis is set at the fair market value of the property on the date the person died. Not the original purchase price. Not what they paid fifty years ago. The value at the moment of death.

This is enormously powerful because it wipes out all the capital gains that accumulated during the deceased person's lifetime. The IRS treats it as though you purchased the asset at its current market value.

A concrete example:

Your parent bought a small farm in Randolph County in 1975 for $15,000. By the time they died in 2024, comparable land in that area sells for $180,000. If your parent had sold the farm before dying, they would have owed capital gains tax on the $165,000 gain.

But because you inherited the farm, your basis is stepped up to $180,000—the value on the date of death. If you sell the farm immediately for $180,000, your capital gain is zero. If you hold it and sell two years later for $210,000, you only owe capital gains on the $30,000 appreciation that occurred after you inherited it.

The $165,000 gain that built up over decades simply disappears for tax purposes.

Why This Matters Particularly in West Virginia

West Virginia has two types of assets where the step-up in basis rule carries exceptional significance:

1. Severed mineral rights. West Virginia's history of coal, oil, and natural gas extraction means many families own mineral rights that were severed from the surface decades or even a century ago. These rights were often acquired cheaply, have appreciated enormously as energy prices have changed, and now generate ongoing royalty income. When these rights pass through an estate, the heir receives a stepped-up basis equal to the fair market value at date of death.

The valuation of mineral rights for basis purposes requires a professional appraisal that uses the State Tax Division's yield capitalization model—calculating present value based on gross royalty receipts with a two-year valuation delay. Getting this appraisal right at the time of death establishes the highest possible stepped-up basis, minimizing capital gains if the heirs later sell the rights to an energy aggregator or royalty company.

If no formal appraisal is obtained and documented, the IRS may challenge the basis claimed on a later sale. The tax savings from a proper appraisal almost always far exceed the appraisal cost.

2. Appalachian land held for generations. Family farms, timberland, and hunting properties in West Virginia routinely have original purchase prices in the low thousands of dollars for property now worth hundreds of thousands. These are exactly the assets where the step-up is most valuable—and where failure to understand it leads to the most painful surprises.

The stepped-up basis applies to real estate that passes through probate to heirs, real estate transferred by will, and real estate that vests immediately in heirs upon death (which is how West Virginia treats real property). Because title to real estate vests in the beneficiaries at the exact moment of death under West Virginia law, the valuation date and the transfer of ownership align perfectly, which means the stepped-up basis is clearly established as of the date of death.

Why Gifting Before Death Destroys the Benefit

Some families try to minimize probate by transferring property to children while still alive. This sounds like a reasonable estate planning move, but for highly appreciated assets, it typically creates a far worse tax outcome.

When you receive property as a gift (rather than through inheritance), you receive the giver's original basis. This is called "carryover basis." You take on whatever the original owner paid for the asset, no matter how long ago or how little that was.

If your parent gives you the same farm in Randolph County while they are still alive—worth $180,000, with an original basis of $15,000—and you later sell it for $210,000, your capital gain is $195,000 (the difference between the sale price and the carryover basis of $15,000). You pay tax on gains that accumulated over the entire period your parent owned it, not just the appreciation since you received it.

Had you inherited the same farm instead, your basis would step up to $180,000 and your taxable gain on the $210,000 sale would be only $30,000.

For most West Virginia families with long-held appreciated assets, passing property through the estate—rather than gifting it during life—dramatically reduces the tax burden on heirs. Estate planning attorneys in West Virginia who work with land and mineral rights almost universally recommend keeping highly appreciated assets in the estate for this reason.

How the ET 6.01 Connects to Your Basis

When you file the West Virginia Appraisement of the Estate (Form ET 6.01) within the required 90-day window, you are declaring the fair market values of all probate assets as of the date of death. These values become the official record of the stepped-up basis.

If the ET 6.01 understates the value of an inherited property—perhaps because no professional appraisal was obtained—the recorded basis is understated. That means when you sell the asset later, you will have a larger taxable gain than you actually owe. The understated basis on the ET 6.01 can cost heirs real money.

Conversely, if you take the time and cost to get an accurate appraisal at the time of death, document it properly, and record it on the ET 6.01, you establish the maximum defensible basis that will minimize capital gains on any future sale.

What Happens with Inherited Investment Accounts

Brokerage accounts and individually held stocks or mutual funds that pass through an estate also receive a stepped-up basis. The brokerage that holds the account typically sends a letter confirming the date-of-death value per share for each holding, which becomes your new cost basis.

If you inherit an account full of stocks that have grown substantially over the years, you can sell them immediately without owing capital gains on the decades of growth—your basis is the value on the day your loved one died. This is why advisors sometimes recommend that heirs who inherit low-basis stock portfolios consider selling and reinvesting rather than holding onto positions they might not have chosen themselves.

What the Step-Up Does Not Cover

The step-up in basis applies to inherited capital assets. It does not apply to:

• Tax-deferred retirement accounts (IRAs, 401(k)s). These have no basis step-up because the funds were never taxed in the first place. Every dollar you withdraw from an inherited IRA is ordinary income.
• Ordinary income items like unpaid salary, deferred compensation, or accounts receivable. These are "income in respect of a decedent" and retain their ordinary income character.

The step-up is a capital gains concept for capital assets. Keep the two categories clearly separate.

Getting the Basis Right from the Start

The step-up in basis is automatic—you do not need to apply for it or elect it. But you do need to document it properly. That means:

1. Obtaining professional appraisals for real estate and mineral rights at or near the date of death
2. Recording accurate values on the ET 6.01 appraisement
3. Keeping the appraisals and ET 6.01 in your records indefinitely (there is no statute of limitations on basis disputes if you eventually sell)

The West Virginia Final Tax & Estate Tax Guide covers how to value mineral rights for the ET 6.01, what documentation to preserve for future basis claims, and how the step-up interacts with the estate's overall tax picture. If your estate includes long-held land or producing mineral rights, this is one of the most financially consequential pieces of knowledge you need before you make any decisions about selling or distributing those assets.

The step-up in basis is one of the most valuable provisions in the tax code for inherited property. In West Virginia, where multi-generational land and mineral rights ownership is common and original purchase prices were often very low, understanding and properly documenting the stepped-up basis can save heirs tens or even hundreds of thousands of dollars. Do not leave that savings on the table by skipping the proper documentation.

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