Stepped-Up Basis

A stepped-up basis is a tax provision where the cost basis of an inherited asset is adjusted ('stepped up') to its fair market value at the date of the owner's death, potentially eliminating all accumulated capital gains and deferred taxes. This is enormously powerful for NNN investors who have used 1031 exchanges over decades. For example, an investor who bought a $500K property in 2005 that is now worth $2M has $1.5M in deferred capital gains. If they sell, they owe ~$300K+ in taxes. But if they hold until death, their heirs inherit at the $2M stepped-up basis and owe zero capital gains tax. Combined with 1031 exchanges and depreciation, the stepped-up basis creates a 'buy, exchange, die' strategy that can defer and ultimately eliminate all income and capital gains taxes on NNN investments across a lifetime.

Stepped-Up Basis is a key concept that affects property valuation, financing decisions, and investment returns in the triple net lease market. Understanding Stepped-Up Basis helps investors make informed acquisition and management decisions.

Stepped-Up Basis directly influences how commercial properties are valued, financed, and traded. Changes in Stepped-Up Basis can impact cap rates, NOI calculations, and overall investment performance for net lease properties.

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