For Miami families inheriting assets like real estate or investments in Coral Gables, Brickell, or Key Biscayne, understanding basis step-up rules is crucial to minimizing capital gains taxes. With the Tax Cuts and Jobs Act (TCJA) set to sunset on December 31, 2025—reducing the federal estate tax exemption from $14.18 million to approximately $7 million—the interplay between step-up in basis and estate taxes becomes more complex. Florida’s lack of state estate tax and 2025 probate reforms (HB 923) offer some relief, but families in Sunny Isles Beach or Coconut Grove must plan strategically to optimize tax benefits on inherited assets.
This article explains basis step-up rules, their impacts post-TCJA, and practical strategies for Florida estates in 2025. Whether you’re inheriting a family home in Palmetto Bay or stocks in Doral, these insights will help reduce tax liabilities and preserve wealth.
What is Basis Step-Up?
Basis step-up refers to the adjustment of an asset’s cost basis to its fair market value (FMV) at the time of the owner’s death, reducing capital gains taxes when heirs sell the asset.
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How It Works: If you buy a $500,000 home in Key Biscayne that appreciates to $1 million at death, the basis steps up to $1 million. Heirs sell without capital gains on the appreciation.
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Key Rule: Applies to assets in the decedent’s taxable estate (IRC Section 1014), including real estate, stocks, and businesses.
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Florida Advantage: No state capital gains tax enhances federal step-up benefits, especially for high-value Miami properties.
For example, heirs inheriting a $2 million Coconut Grove condo with a $800,000 original basis avoid $240,000 in capital gains taxes (20% rate) due to step-up.
Impacts of Post-TCJA Basis Step-Up in 2025
The TCJA sunset affects how step-up interacts with estate taxes:
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Exemption Drop: Estates over $7 million face 40% federal estate tax, but step-up still applies, potentially reducing overall taxes for appreciating assets.
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Carryover Basis Risk: For assets excluded from the estate (e.g., gifted during life), heirs receive carryover basis, increasing capital gains exposure.
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FUFIPA Updates: Florida’s 2025 Uniform Fiduciary Income and Principal Act clarifies asset allocation, impacting step-up in trusts.
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Miami’s Market: High real estate appreciation (5–10% annually in Brickell) amplifies step-up benefits, but TCJA changes require careful gifting vs. inheritance decisions.
Estates under $7 million post-sunset benefit fully from step-up without estate tax, ideal for middle-income families in Doral.
Why Basis Step-Up Matters in 2025
Several factors underscore its importance:
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TCJA Sunset: Encourages holding assets until death for step-up, rather than gifting, to avoid carryover basis taxes.
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Probate Reforms: HB 923 streamlines asset transfers, but accurate valuations are key for step-up claims.
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Appreciating Assets: Miami’s real estate and crypto markets make step-up a major tax saver.
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Family Dynamics: Blended families in Palmetto Bay need clear plans to maximize step-up for all heirs.
5 Strategies to Optimize Basis Step-Up in 2025
To maximize step-up benefits, consider these Florida-specific strategies.
1. Hold Appreciating Assets Until Death
Retain low-basis assets like Miami real estate in your estate for step-up.
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How It Works: Include a $1 million Sunny Isles Beach condo (original basis $400,000) in your estate; heirs receive $1 million basis, avoiding $120,000 in capital gains (20% rate).
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Benefit: Outweighs estate tax for estates under $7 million post-sunset.
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Action Step: Consult a Miami probate attorney to ensure assets are in revocable trusts compliant with Florida Statute 736.0403.
2. Use Spousal Transfers for Double Step-Up
Leverage marital deductions for double step-up in community property states or via trusts.
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How It Works: Transfer assets to a spouse via qualified terminable interest property (QTIP) trust; step-up occurs at first death, with potential second step-up at spouse’s death.
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Benefit: Maximizes tax savings for couples in Coral Gables with $10 million estates.
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Action Step: Work with a Florida estate planning lawyer to draft QTIP trusts aligned with 2025 FUFIPA rules.
3. Avoid Lifetime Gifting of Low-Basis Assets
Gift cash or high-basis assets instead of low-basis ones to preserve step-up.
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How It Works: Gift $19,000 annually (2025 exclusion) in cash, holding low-basis stocks for inheritance and step-up.
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Benefit: Prevents carryover basis, saving heirs taxes on $500,000 appreciation in Coconut Grove investments.
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Action Step: Engage a Miami attorney to structure gifting compliant with IRS rules.
4. Document Asset Valuations Accurately
Ensure precise FMV appraisals for step-up claims.
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How It Works: Hire a qualified appraiser for date-of-death valuations (e.g., a $3 million Palmetto Bay home), filing with IRS Form 706 if required.
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Benefit: Supports IRS audits and aligns with 2025 probate reforms (HB 923) for streamlined administration.
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Action Step: Partner with a Florida probate lawyer to coordinate appraisals and tax filings.
5. Integrate with Irrevocable Trusts
Use irrevocable life insurance trusts (ILITs) or dynasty trusts to complement step-up.
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How It Works: Place life insurance in an ILIT (outside estate) for liquidity, while holding appreciating assets in the estate for step-up.
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Benefit: Balances tax strategies for high-net-worth families in Brickell post-TCJA sunset.
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Action Step: Consult a Miami estate planning attorney to draft trusts compliant with Florida Statute 736.0417.
Why a Miami Probate Attorney is Essential for Step-Up Planning
Florida’s unique legal landscape—no state capital gains tax, homestead protections, and 2025 FUFIPA updates—requires local expertise. A Miami probate attorney can:
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Ensure step-up eligibility for homestead properties under Florida Statute 196.031.
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Navigate 2025 probate reforms (HB 923) for accurate asset transfers.
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Coordinate valuations and tax strategies to minimize liabilities.
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Mitigate disputes among heirs over basis adjustments.
For example, a Doral family’s $4 million business inheritance faced $600,000 in unexpected taxes due to missed step-up. A Miami attorney optimized the plan, saving $400,000.
Maximize Basis Step-Up in 2025
Basis step-up rules offer significant tax relief for inherited assets in Florida’s appreciating markets. By holding low-basis assets, using spousal transfers, and documenting valuations, Miami families can reduce capital gains and preserve wealth post-TCJA sunset.
