Bitcoin Stepped-Up Basis at Death: The Definitive Guide

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Somewhere, right now, a Bitcoin holder is sitting on a position they bought at $500, $3,000, or even $10,000 per coin. That position is worth a multiple of the original cost — and every dollar of that appreciation is embedded in a capital gain that will eventually be reckoned with. Or will it?

Under IRC §1014, there is a legal pathway to eliminate every one of those unrealized gains — permanently, without any transaction, without any trust structure, without any sophisticated planning maneuver. Hold Bitcoin until death. Pass it to heirs. The basis resets to the date-of-death fair market value. All prior appreciation vanishes from the tax ledger as if it never happened.

This is the stepped-up basis at death. It has been part of the United States tax code for over a century. It applies to every capital asset — stocks, real estate, private equity. But in the context of Bitcoin — an asset that has appreciated from pennies to tens of thousands of dollars over the past fifteen years — the magnitude of the tax elimination is unlike anything most tax practitioners have encountered in a single asset class.

This guide explains exactly how it works, why the mechanics matter, what heirs must do to protect the benefit, and how sophisticated Bitcoin holders are structuring their estates around it.

What the Step-Up in Basis Actually Means

Cost basis is the starting point for calculating a capital gain. When you sell an asset, your taxable gain is the sale price minus your cost basis. If you bought 1 BTC for $10,000 and sold it for $90,000, your taxable gain is $80,000. Depending on your income, you'd owe 15% to 23.8% federal capital gains tax on that amount — a federal tax bill of $12,000 to $19,040, before any applicable state tax.

The step-up in basis under IRC §1014 operates on a simple principle: when someone dies, their heirs do not inherit the asset's tax history. The heir's basis is reset — "stepped up" — to the fair market value of the asset on the date of the decedent's death. The IRS treats the inherited asset as if the heir purchased it at that date-of-death price. All appreciation that occurred prior to death simply ceases to exist for tax purposes.

This is not a deferral. It is not a rollover. The gain is not moved into a future liability. It is eliminated. If the decedent bought Bitcoin at $10,000 and it was worth $90,000 at death, the $80,000 gain is gone — permanently. No tax will ever be collected on it, by anyone, under current law.

The rule applies to all property included in the decedent's gross estate — directly held Bitcoin, Bitcoin in a revocable living trust, and Bitcoin ETF shares. It does not apply to property transferred outside the estate (irrevocable trusts, IRA accounts, or certain other vehicles) — a distinction explored in detail below.

The legal authority is unambiguous: IRC §1014(a)(1) states that "the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be — the fair market value of the property at the date of the decedent's death." Bitcoin is property under IRS Notice 2014-21. There is no ambiguity in the application of §1014 to Bitcoin.

Why Bitcoin Makes This Uniquely Powerful

The step-up in basis has existed for decades. For most of that time, its practical impact was meaningful but bounded — stock portfolios might double or triple over a lifetime, and real estate might appreciate 5× in a favorable market. The step-up eliminated those gains at death, producing material but comprehensible tax savings.

Bitcoin's appreciation profile is categorically different. An asset that traded at under $1 in 2010 and now trades above $80,000 represents an appreciation ratio that is orders of magnitude beyond what any traditional asset class has delivered. For holders who acquired Bitcoin early, the gap between cost basis and current value is not a percentage — it is a multiple of tens, hundreds, or in some cases thousands.

Consider the actual numbers at different acquisition points:

These are conservative figures based on a 5 BTC position. Families holding 10, 50, or 100 BTC — not uncommon among early adopters, miners, or professionals who accumulated through payroll or services — face embedded gains in the millions or tens of millions. At those scales, the step-up at death is one of the largest wealth preservation mechanisms available in the entire tax code, dwarfing most trust structures, charitable strategies, or other planning tools in raw dollar terms.

The comparison to other assets is instructive. A stock portfolio that grew from $500,000 to $1,500,000 has a $1,000,000 gain subject to the step-up. A Bitcoin portfolio that grew from $50,000 to $1,500,000 has a $1,450,000 gain subject to the step-up — nearly 50% more gain eliminated, from a position of identical current value. The earlier the acquisition, the more powerful the step-up becomes in absolute terms.

The Mechanics: How Basis Is Established at Death

Understanding how the stepped-up basis is actually established — procedurally and legally — is essential for both decedents planning their estates and heirs receiving Bitcoin. The process has several components.

Step 1: Establishing the Date-of-Death Fair Market Value

Fair market value is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts. For publicly traded Bitcoin, the IRS accepts the mean between the highest and lowest trading prices on the date of death — the average of that day's high and low on a recognized exchange.

Practically, this means the executor should capture price data from a major exchange (Coinbase, Kraken, Bitstamp, or similar) for the exact date of death and calculate the daily average. Many exchanges provide historical OHLC (open-high-low-close) data accessible through their APIs or historical data dashboards. For large estates, a qualified appraisal from a cryptocurrency valuation professional provides the strongest documentation.

Block explorer confirmation is also essential. The executor should use a block explorer (Blockchain.info, Blockstream.info, Mempool.space) to confirm the exact BTC balance in any self-custody wallets at the time of death. This creates an auditable, timestamped record linking wallet addresses to balances on the date of death — the foundational layer of basis documentation for self-custodied Bitcoin.

Step 2: Reporting on Form 706

If the estate is required to file a federal estate tax return (Form 706), Bitcoin must be listed as an asset with its date-of-death fair market value. Form 706 is required when the gross estate exceeds the filing threshold — $13.61 million for deaths in 2024, approximately $15 million for deaths in 2025 and 2026 under the expanded exemption in the One Big Beautiful Budget Act.

If Form 706 is filed, the estate must also issue Form 8971 to each beneficiary — a document that formally establishes the heir's inherited basis consistent with the values reported on the estate tax return. The IRS requires that heirs' basis cannot exceed the value reported on the estate tax return. This consistency requirement, enacted in 2015, means that the executor's valuation on Form 706 directly determines the heir's allowable cost basis.

If the estate is below the filing threshold and no Form 706 is filed, heirs should still document the date-of-death FMV using exchange records, block explorer screenshots, and any other contemporaneous evidence. There is no formal filing that establishes basis for smaller estates — the heir simply maintains their own records and reports the inherited basis on Schedule D when they eventually sell.

Step 3: Long-Term Holding Period — Automatic

IRC §1223(11) provides that an heir's holding period for inherited property is automatically treated as long-term, regardless of how long the heir actually held the asset before selling. An heir who inherits Bitcoin on Monday and sells it on Wednesday is taxed at long-term capital gains rates — not short-term ordinary income rates. This holding period reset is automatic and requires no special election.

This has a significant practical effect for heirs who want to liquidate quickly. Without the holding period reset, selling within 12 months of death would trigger ordinary income rates of up to 37%. With it, the sale is taxed at preferential long-term rates (0%, 15%, or 20%) regardless of timing.

Two Scenarios for Heirs: Sell Immediately or Hold

When you inherit Bitcoin with a stepped-up basis, you face a decision the decedent never had to make: sell at the new basis (potentially zero gain) or hold and build from the new baseline. Both paths have merits, and the step-up changes the calculus fundamentally.

Scenario A: Sell Immediately After Inheriting

This is the cleanest expression of the step-up's power. If Bitcoin is worth $90,000 on the date of death and the heir sells within days at $91,000, the taxable gain is only $1,000 — the appreciation between the date-of-death basis and the sale price. All of the prior holder's lifetime appreciation is completely tax-free.

For heirs who want immediate liquidity — to pay estate expenses, distribute to multiple beneficiaries, or simply convert to cash — selling immediately after establishing the stepped-up basis is often the optimal tax strategy. The only situation where the gain might not be near-zero is a significant Bitcoin price movement between the date of death and the date of sale.

If Bitcoin drops between the date of death and the sale date, the heir can actually recognize a capital loss — the sale price is below the stepped-up basis. This loss can offset other capital gains. The step-up creates a rare asymmetry: heirs participate only in future appreciation, never in past appreciation that already occurred during the decedent's lifetime.

Scenario B: Hold After Inheriting

Heirs who believe in Bitcoin's long-term trajectory may choose to hold the inherited position. They do so with a clean tax slate: their cost basis is the date-of-death value, and any future appreciation above that basis will eventually be taxed — but only above that new baseline, and at long-term capital gains rates regardless of how long they held before selling.

The critical insight for heirs who hold: you are starting fresh. The decedent's cost basis is irrelevant to you. Your tax exposure is only on Bitcoin's future appreciation from the date-of-death price forward. If Bitcoin's long-term trajectory continues, your eventual gain will be entirely attributable to your own holding period — the prior generation's accumulation is your tax-free inheritance.

The Alternate Valuation Date (§2032): A Volatility Valve

Bitcoin's volatility creates a planning opportunity — and a risk — that does not exist for most traditional assets. Under IRC §2032, the executor of an estate may elect to use an alternate valuation date — the date six months after the decedent's death — instead of the actual date of death for valuing estate assets, provided that doing so reduces both the gross estate value and the estate tax liability.

The election is all-or-nothing: the executor cannot selectively apply the alternate valuation date to individual assets. If elected, all assets are valued six months post-death (or at the date of disposition if sold before the six-month mark).

When the Alternate Valuation Date Helps

Suppose Bitcoin is worth $100,000 on the date of death, placing the decedent's estate above the exemption and triggering estate tax. Six months later, Bitcoin has declined to $70,000. The executor can elect the alternate valuation date, reducing both the taxable estate and the estate tax bill. The heir's stepped-up basis also drops to $70,000 per BTC — a lower baseline, but the estate tax savings may significantly outweigh the reduction in stepped-up basis.

When the Alternate Valuation Date Hurts

If the estate is below the estate tax exemption, the alternate valuation date election provides no estate tax benefit — and it cannot be used to lower the heir's basis without a corresponding estate tax reduction. The provision is specifically designed to be available only when it serves the estate's tax interests, not merely to adjust heirs' basis.

For estates well below the exemption, the date of death value is generally the correct basis regardless of what Bitcoin does in the six months following death. Heirs who inherit Bitcoin and watch it drop 40% in the following months cannot retroactively elect a lower basis — they are stuck with the date-of-death valuation as their baseline, which means they may actually have a capital loss if they sell at depressed prices.

The Gifting Trap: Why Carryover Basis Is Dangerous

One of the most common — and costly — mistakes in Bitcoin wealth planning is gifting appreciated Bitcoin during one's lifetime without understanding the tax consequences for the recipient. This is the "gifting trap," and it is the direct inverse of the step-up's benefit.

When you gift property to someone during your lifetime, they receive a carryover basis — your original cost basis carries over to them. There is no reset. There is no step-up. The embedded capital gains transfer with the asset. If the recipient later sells the Bitcoin, they pay capital gains tax on all appreciation that occurred during your ownership period, plus their own.

This creates a specific planning rule: never gift highly appreciated Bitcoin outright during your lifetime if the recipient has a comparable or higher tax rate. The tax liability is not eliminated by gifting — it is transferred. In most cases, the donor would have been better off simply holding the Bitcoin until death and letting heirs inherit with the full step-up.

There are situations where gifting still makes sense. If the recipient is in the 0% capital gains bracket (income below ~$47,000 for single filers), they may be able to sell gifted Bitcoin tax-free — the carryover basis becomes irrelevant. Annual exclusion gifts ($18,000 per recipient per year in 2024) can also efficiently transfer modest amounts of Bitcoin if the cost basis is relatively close to current value. And for estates above the federal exemption where estate tax is a larger concern than capital gains tax, removing Bitcoin from the estate through gifting or irrevocable trust structures may be the right calculus despite forgoing the step-up.

For a comprehensive analysis of the carryover basis rules and how to avoid the gifting trap, see our companion guide: Bitcoin Carryover Basis: What Happens When You Gift Instead of Inherit →

Joint Ownership & Community Property: The State-Law Timing Trap

How Bitcoin is titled between married couples significantly affects how much of the step-up they receive — and the rules vary sharply depending on whether the couple lives in a community property state or a common law state.

Community Property States: The Double Step-Up

Nine states follow community property law: California, Texas, Arizona, Nevada, Washington, Idaho, Louisiana, New Mexico, and Wisconsin. In these states, property acquired during marriage is generally owned equally by both spouses as community property.

IRC §1014(b)(6) provides a powerful benefit for community property: when one spouse dies, both halves of community property receive a step-up to date-of-death fair market value — even though only the decedent's half is included in the estate. This is commonly called the "double step-up" or "community property step-up."

Common Law States: Only 50% Steps Up

In the 41 common law states (Florida, New York, Illinois, and most others), the default rule is that each spouse individually owns the property they brought to the marriage or acquired in their own name during marriage. When one spouse dies, only the deceased spouse's share of jointly held property steps up — typically one-half of the joint tenancy or tenancy-in-common interest.

For a joint tenancy Bitcoin wallet held by a New York couple, only 50% of the Bitcoin steps up at the first spouse's death. The surviving spouse's 50% retains the original cost basis. For heavily appreciated Bitcoin, this means roughly half the potential step-up benefit is preserved at the first death, with the other half deferred to the second death.

Planning Implications

For Bitcoin families in common law states with significant embedded gains, there are strategies to approximate the community property benefit:

• Spousal transfer before death: In some common law states, a married couple can convert property to community property treatment by executing a community property agreement — particularly accessible if the couple has ties to a community property state.
• Title in the name of the older/less healthy spouse: If the step-up is a priority, consider titling the Bitcoin entirely in the name of the spouse more likely to die first, so 100% of the position steps up at their death (rather than only 50% of jointly held property).
• Separate property holding: A gift from one spouse to the other — while potentially taxable — can consolidate the Bitcoin into the estate of the likely first-to-die, maximizing the step-up.

These strategies require careful coordination with state property law and estate planning counsel. The goal is to concentrate the basis-gap Bitcoin in the estate of the first spouse to die while keeping the total estate value below the federal exemption where possible.

The "Die With Bitcoin" Strategy: Buy-Borrow-Die Architecture

The step-up in basis is not just a passive benefit that arrives at death. For sophisticated Bitcoin holders, it is the foundation of an active lifetime income strategy known colloquially as "Buy-Borrow-Die" — one of the most elegant intersections of monetary policy, tax law, and asset management in modern finance.

The architecture is straightforward in concept:

1. Buy Bitcoin. Accumulate a significant position over time. Never sell — selling triggers the capital gain, destroys the step-up opportunity, and permanently forfeits the tax benefit.
2. Borrow against it. Use Bitcoin as collateral for low-interest loans. The loan proceeds are not taxable income — debt is not revenue. You receive cash to live on, invest, or spend without triggering a capital gain. Bitcoin-backed lending platforms (Ledn, Anchorage, institutional lenders) offer collateralized loans typically ranging from 25% to 50% LTV.
3. Die with the Bitcoin. At death, the Bitcoin's basis resets to current market value. Your heirs inherit it with no capital gains tax on your lifetime appreciation. They can sell immediately to repay any outstanding loans and pocket the difference, or hold the position with the new basis.

This is not a hypothetical strategy — it is the same approach used by founders, real estate moguls, and ultra-high-net-worth families holding concentrated positions in any appreciating asset. The Rockefellers held Standard Oil for decades and borrowed against it. The same math applies to Bitcoin with even greater leverage given the appreciation ratios involved.

The Loan Repayment at Death

A common concern: if the estate holds outstanding Bitcoin-backed loans at death, how are they repaid? There are several paths:

• The estate pays off the loan from other liquid assets, and heirs inherit the full Bitcoin position with the stepped-up basis.
• The heirs sell a portion of the inherited Bitcoin (at the stepped-up basis, generating minimal gain) to repay the loan, and hold the remainder.
• The heirs refinance the loan in their own names, maintaining the Bitcoin position while managing the debt.

In all scenarios, the key is that the Bitcoin itself receives the step-up regardless of the outstanding loan balance. Debt does not reduce or eliminate the heir's stepped-up basis — the basis is determined by the asset's FMV at death, not its net equity after liabilities.

The Complete Picture

The Buy-Borrow-Die strategy is most powerful for holders with large embedded gains who need liquidity without triggering taxable events. It requires access to Bitcoin-backed lending, careful loan-to-value management (avoiding margin calls in volatile markets), and an estate plan that ensures Bitcoin is included in the estate (not transferred to an irrevocable trust) to capture the step-up. For a detailed breakdown of this strategy, see: The Bitcoin Buy-Borrow-Die Strategy: Architecture and Execution →

When Estates Are Taxable: Two Taxes, Two Calculations

A misconception that periodically surfaces in financial planning discussions: if your estate is large enough to owe estate tax, the step-up in basis somehow doesn't apply, or is reduced, or is traded off against estate tax savings. This is incorrect. The estate tax and the income tax step-up are completely separate mechanisms operating under completely separate Code sections.

Here is the precise interaction:

• Estate tax (IRC §2001 et seq.) is imposed on the decedent's gross estate at 40% on the value above the applicable exemption. Bitcoin included in the estate is taxed at its date-of-death FMV, regardless of the decedent's original cost basis.
• Step-up in basis (IRC §1014) separately provides that heirs take a cost basis equal to the same date-of-death FMV used for estate tax purposes. The two calculations use the same value but apply to different tax obligations.

This "double benefit" (or more precisely, the absence of a double penalty) is sometimes cited by critics as a justification for eliminating the step-up. The argument: estates above the exemption pay 40% estate tax on full value AND heirs get a tax-free basis reset — the appreciated gains escape capital gains tax entirely. From a policy perspective, this was always the design of the dual system. Practically, it means that for taxable estates, the step-up still has full force — there is no phase-out, no clawback, and no offset against estate tax liability.

For families with estates well above the federal exemption (roughly $15 million per individual in 2026), the combined planning challenge is managing both estate tax and basis optimization simultaneously. This typically involves a mix of irrevocable trust structures (to remove appreciation from the estate, sacrificing some step-up) and retained personal holdings (to preserve the step-up on Bitcoin that may not survive a trust structure efficiently). The right balance is highly fact-specific. For a comprehensive framework, see: The Complete Bitcoin Estate Planning Guide →

The IRA Exception: Why Bitcoin in Retirement Accounts Is Different

The single most important structural distinction in Bitcoin estate planning is the difference between directly held Bitcoin and Bitcoin held inside an individual retirement account (IRA). From a step-up perspective, these two holding structures produce dramatically different outcomes for heirs — and the difference is entirely unfavorable for IRA Bitcoin.

No Step-Up for IRA Bitcoin

Bitcoin held inside a traditional IRA (including a self-directed IRA) does not receive a step-up in basis at the owner's death. IRAs are governed by IRC §408 and related provisions — not by the estate tax and step-up rules of §§2001–2210 and 1014. All IRA distributions, to any beneficiary at any time, are taxed as ordinary income at the recipient's marginal rate. Bitcoin's appreciation inside the IRA is irrelevant — the tax treatment is determined by the account structure, not the asset's appreciation.

The SECURE Act's 10-Year Rule

The SECURE Act of 2019 (and SECURE 2.0 in 2022) significantly restricted the inherited IRA rules that had previously allowed "stretch" distributions over a beneficiary's lifetime. Under current law, most non-spouse beneficiaries of a traditional IRA must withdraw the entire account balance within 10 years of the original owner's death. Each withdrawal is taxed as ordinary income.

For Bitcoin held in an IRA that has appreciated substantially, this creates a compounded problem: large distributions forced into a 10-year window, all taxed at ordinary income rates, with no step-up, no LTCG treatment, and no ability to defer. An heir who inherits $500,000 worth of Bitcoin in a traditional IRA may ultimately pay $150,000 or more in income tax on those distributions, depending on their marginal rate and the distribution timing.

The practical implication: from a pure step-up optimization standpoint, Bitcoin is better held in a taxable account than in a traditional IRA. The step-up benefit on directly held Bitcoin is typically more valuable than the tax-deferred growth inside an IRA — particularly for Bitcoin, where growth rates are high and traditional IRA benefits (tax deferral on dividends and interest) are irrelevant since Bitcoin produces neither.

Roth IRA: A Different Calculus

A Roth IRA does not produce the same problem. Although Bitcoin in a Roth IRA also does not receive a step-up, Roth distributions are tax-free if the account has been open for five years and the owner was 59½ or older at death. For heirs, this means the 10-year distribution requirement applies but the distributions are tax-free — the step-up is irrelevant because there is no tax to eliminate. Bitcoin in a Roth IRA is generally a favorable holding for long-term appreciation, but it does not benefit from the step-up mechanism.

Legislative Risk: Could the Step-Up Be Eliminated?

The step-up in basis is a frequent target of legislative proposals aimed at taxing inherited wealth more aggressively. Understanding the current state of that risk — and how to monitor it — is part of any responsible estate planning conversation.

What Has Been Proposed

The Biden administration's fiscal year 2022 and 2023 budget proposals included a "recognition at death" regime that would have treated death as a realization event — essentially forcing the decedent's estate to pay capital gains tax on unrealized appreciation as if the assets were sold at death. Under that proposal, the step-up in basis would have been replaced by a taxable event at death, subject to an exclusion of $1 million per person (plus $500,000 for a primary residence). For Bitcoin holders with millions in embedded gains, this would have been a dramatic and costly change.

Those proposals never passed. They did not receive the votes needed in the Senate, and they did not survive the legislative process. The step-up in basis under IRC §1014 remained fully intact throughout the Biden administration.

Current Law (2026)

The One Big Beautiful Budget Act (OBBBA), signed in 2025, not only preserved the step-up in basis but expanded the estate tax exemption — reducing the number of estates subject to estate tax and making the step-up more broadly beneficial for Bitcoin holders in the middle of the wealth distribution. As of early 2026, there is no pending legislation with a realistic path to passage that would eliminate or significantly curtail the step-up.

The Risk to Monitor

The step-up remains a political target and has been consistently included in progressive tax reform proposals. Future administrations or Congresses could revisit the issue, particularly in deficit-reduction contexts. Estate planners should:

• Monitor tax legislation with any change in Congressional control or budget pressure
• Build estate plans that do not rely exclusively on the step-up — diversify strategies
• Understand that proposals typically include grandfathering provisions for existing assets, but this is not guaranteed
• Consider charitable giving or trust structures as partial hedges if the step-up were eliminated

The risk is real but currently remote. Under current law, the step-up is fully available and should be planned around aggressively. The appropriate posture is: maximize the benefit under current law while maintaining flexibility to adapt if the law changes.

Documentation: What Heirs Must Preserve

The stepped-up basis is only as strong as the documentation supporting it. In an audit or estate dispute, the heir's ability to prove their inherited basis rests entirely on the records they can produce. Below is the complete documentation framework for inherited Bitcoin.

Date-of-Death Price Documentation

The IRS requires that Bitcoin's fair market value be established using the mean between the highest and lowest trading prices on a recognized exchange on the date of death. The executor and heirs should preserve:

• Exchange price screenshots: Timestamped screenshots of daily OHLC data from Coinbase, Kraken, or another major exchange on the exact date of death. Archive in PDF format with the date and source clearly visible.
• API export: For large estates or precise documentation, export the historical OHLC data directly from the exchange's API and retain the raw data file. This is harder to dispute than a screenshot.
• Multiple exchange cross-reference: Document the price on two or three major exchanges to demonstrate reasonable market value determination. The IRS will generally accept an average of reputable exchange prices.
• CoinMarketCap/CoinGecko historical data: Aggregate price comparison tools provide a reasonable secondary reference, though exchange-level data is preferred.

Wallet and Holdings Verification

For self-custodied Bitcoin, the heir must be able to establish what Bitcoin the decedent held and where it was held on the date of death:

• Block explorer records: Use Mempool.space, Blockstream.info, or Blockchain.info to capture the balance in each known wallet address as of the date of death. Screenshot with the address and balance visible. Block explorer records are timestamped by block height and are essentially immutable — they are among the most reliable documentation available.
• Hardware wallet records: If Bitcoin was held on a Ledger, Trezor, Coldcard, or other hardware device, document the wallet's extended public key (xpub) and the balance it controlled at death. The estate's Letter of Instruction should have included this information — if not, the executor must work with available records to reconstruct it.
• Exchange account statements: For exchange-held Bitcoin, the platform's account history export provides both the balance at death and the acquisition transaction history necessary to establish the decedent's original cost basis (for estate tax and consistency purposes).

Form 706 and Form 8971

If the estate files Form 706, the executor must report Bitcoin's date-of-death value as part of the estate's asset schedule. The executor must also issue Form 8971 and accompanying Schedule A to each beneficiary who receives estate property. Form 8971 formally establishes the heir's basis consistent with the estate tax return values — and under Treasury Regulation §1.1014-10, heirs' basis cannot exceed the value reported on the estate tax return.

Heirs should retain Form 8971 / Schedule A permanently. This is the IRS-issued document that most directly substantiates a stepped-up basis claim in any audit.

For Estates Below the Filing Threshold

If the estate is below the Form 706 filing threshold and no estate tax return is filed, there is no formal IRS-generated basis documentation. In this case, heirs should:

• Maintain their own file of date-of-death price evidence, block explorer records, and any contemporaneous valuation
• Record the inherited Bitcoin in their crypto tax software (Koinly, CoinTracker, TaxBit) with acquisition type "Inherited," acquisition date = date of death, and cost basis = date-of-death FMV per coin
• Retain copies of death certificate, will or trust document establishing inheritance, and any probate records confirming transfer
• Consider obtaining a written appraisal from a qualified cryptocurrency appraiser even for non-taxable estates if the position is large — the appraisal creates a defensible contemporaneous record

Step-Up in Basis by Holding Structure

The step-up applies differently depending on how Bitcoin is held at death. This comparison covers every major holding structure:

Frequently Asked Questions