Diagram illustrating estate planning benefits of a 1031 exchange, showing a house purchased 20 years ago for $500,000, now valued at $2,000,000, with the property sold and reinvested on a stepped-up basis, and the subsequent sale of the inherited property after 5 years for $2,300,000, with a $300,000 gain subject to tax.

  1. Step up in Basis: when your heirs inherit the property, the value of the property is “stepped up” to its current market value, not the original purchase price.

  2. No Capital Gains Tax for Heirs (If Sold Immediately): Because the new tax basis is equal to the property’s market value, if your heirs sell it immediately, they won’t owe any capital gains tax.

  3. Future Sales Are Taxed Only on Post - Inheritance Gains: If your heirs decide to keep the property and sell it later, they only owe taxes on any appreciation after they inherited it.