How is stepped-up basis on inherited real estate determined?

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DEAR BOB: In 1956 my parents purchased their house for $13,000. By a gift deed, title was transferred several years later to my sister who lived with our parents. My parents died in 1987 and 1988. My sister died in 2004. She had a revocable living trust. Proceeds from the sale of her house after her death were shared by her five surviving siblings, including me. Our lawyer says there is no capital gain tax because we automatically received a "stepped-up basis" for the inherited house. Please explain how that basis is determined – Tony J. DEAR TONY: Your situation is a beautiful example of doing everything right. Usually, I receive letters about costly mistakes. It's such a pleasure to read your letter. Purchase Bob Bruss reports online. After your sister died in 2004, the five surviving siblings received title to her house at its current market value on the date of her death under the terms of her living trust. Thanks to her wise decision to hold title in her revocable living ...