My understanding is that the step-up in basis only applies to inheritances or other tax-exempt transfers of ownership — right?
And when I sell my house, the profit isn’t taxed.
In this context we are talking about appreciated assets one owns at the time of death.
The primary reason for the stepped-up basis rule is that in many cases it is difficult, if not impossible, to figure out what the basis for property owned by a decedent is. When my 88 year old mother dies and the house she and my father built thirty-five years ago is sold, how am I going to figure out how much they spent to build the house and for improvements during their ownership? There's no way that I can. The records do not exist.