My question is propted by this question on the logic behind the stepped up cost basis for inherited property, but is in no way a duplicate.

Suppose that the value of, say, a stock at the time of the death of the purchaser is less than what she/he paid for the stock. What is the cost basis when the inheritor sells the stock: the purchase price or the price of the stock at the time of the purchaser's death?


The term "stepped up basis" is kind of a misnomer because as you point out, basis can go both up and down, meaning essentially basis is just "reset". This means you're better off selling losing stocks before death so you can take advantage of the tax loss. At death the losing and winning stocks are all reset to their present value.

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