Stepped-up basis is the reset of an inherited property's tax basis to its fair market value on the date of death. Permanently eliminates all previously deferred capital gains and depreciation recapture for heirs.
When you die owning appreciated real estate, your heirs receive the property with a basis equal to fair market value on the date of your death — not what you originally paid. All the accumulated gain disappears for tax purposes.
For LA multifamily owners over 65 with significant appreciation and estate planning considerations, the "1031 until death" strategy is often optimal. Defer through life via 1031 exchanges, eliminate at death via stepped-up basis.
Many of the most successful multigenerational LA multifamily families have used this strategy across decades. Holding Prop 13-protected buildings until death means heirs receive property at current market value basis while family wealth remains intact.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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