Do I Get a Step-Up in Cost Basis for Inherited Foreign Property?
Yes, under IRC Section 1014, inherited foreign property receives a step-up in cost basis to fair market value (FMV) on the decedent’s date of death, converted to USD at that date’s exchange rate. This applies whether or not U.S. estate tax was owed, and regardless of the decedent’s citizenship or the property’s location. The step-up can dramatically reduce or eliminate your U.S. capital gains tax when you eventually sell.
How the step-up works for foreign property:
| Item | How to determine |
| Date of death FMV | Local appraisal, comparable sales, or foreign tax authority valuation |
| USD conversion rate | Treasury rate or published rate on the date of death |
| Alternate valuation date | Six months after death (Form 706 election only, if estate tax return is filed) |
| Improvements after inheritance | Add to stepped-up basis at USD rate when paid |
Example (inherited French apartment):
| Item | EUR | USD |
| Decedent’s original purchase price (2005) | EUR 200,000 | $240,000 |
| FMV on date of death (2024) | EUR 450,000 | $495,000 @ 1.10 |
| Your stepped-up basis | $495,000 | |
| Sale price (2026) | EUR 470,000 | $493,500 @ 1.05 |
| U.S. capital gain | $0 (loss of $1,500) |
Without the step-up, you would have owed tax on $253,500 of gain. With it, you have a small loss.
What does NOT get a step-up:
- Property received as a gift during the donor’s lifetime (you take the donor’s basis, not FMV)
- Property in a revocable grantor trust in some foreign jurisdictions, where the trust structure may not qualify under Section 1014 (seek professional advice)
- Property the decedent received as a gift within one year of death, and that passes back to the original donor
Documentation you need:
- Death certificate and will or succession documents
- Independent appraisal or government tax valuation at the date of death
- Exchange rate source (Treasury, OANDA, or bank record)
For inherited property tax planning, see our guide on Avoiding Capital Gains Tax on Inherited Property.
Last updated on April 29, 2026
