Technical article

United States: Step-up at Death or a Gift Now, for a Collection

A lifetime gift gives up the reset at death.

By Neil Solomon · 3 min read

Imagine a father in Connecticut with a painting he bought for US$100,000, now worth US$1,000,000. These are example numbers. He has two ways to pass it to his daughter. He can give it now, or she can inherit it. The sources say the tax starting point differs a great deal between the two.

The starting point

The tax on a later sale is worked out from a starting figure, called the basis. For a painting that is first the price paid.

With an inheritance, the basis resets. Under the statute, property from a person who has died takes a basis equal to its fair market value on the date of death. The executor may elect an alternate valuation date.

With a gift, the daughter takes the father's basis, which the IRS calls carryover basis. A lifetime gift gives up the reset at death.

In the example, a sale just after inheritance would show a small gain. A sale after a gift would show a gain measured from US$100,000. The collectibles rate of up to 28% applies to a gain, so the starting point matters.

The size of the gift and estate numbers

The 2026 federal estate and gift exclusion is US$15,000,000 per person, set by a law signed on 4 July 2025. The annual gift exclusion for 2026 is US$19,000 per recipient. Gifts above that use part of the US$15,000,000. The top estate tax rate is 40%.

Some press pieces still say the exclusion falls to about US$5,000,000. Two articles say so, one undated and one from 2025. They predate the change, and the IRS-based figure is US$15,000,000.

Papers

If a Form 706 is filed, the estate also files Form 8971, and heirs must use a basis consistent with the final estate value. Items worth more than about US$3,000 generally need a written expert appraisal, according to one shipping firm's guide. When a collection is appraised as one lot, a forum answer to a tax question says the executor must give each item its own share of the value before items are sold separately.

States

Twelve states plus Washington, DC charge an estate tax, with exemptions from US$1 million in Oregon to US$15 million in Connecticut, according to a retirees' association summary. Five states charge an inheritance tax: Pennsylvania, New Jersey, Nebraska, Kentucky and Maryland. It falls on the heir by relationship, so a sibling or friend can owe tax on a bequest while a child may not.

The objection

You might say a gift now lets you watch your child enjoy the work. That is a real gain and the sources do not weigh it. They show only the tax. They also show that a gift in life and an inheritance reach the same child with a different basis.

Doors you could open

You could ask your children which pieces they want, and which they would sell. You could write the cost and year of each item now. You could ask whether your state has an estate or inheritance tax.

Does the US Tax My Estate if I Am a Citizen Living in Another Country? covers the estate and gift tax side for heirs who live abroad.

What did your family decide, and what did you wish you had known? Share it here. Someone else may be weighing the same two doors.

Figures are estimates for planning, based on public data. Date read: October 2026.