What is the basis of property inherited from a deceased individual according to tax regulations?

The correct understanding of the basis of property inherited from a deceased individual is that it is generally determined by the value of the property at the date of the decedent’s death, often referred to as the "stepped-up basis." This means that the beneficiary receives the property at its fair market value at the time of inheritance rather than the original cost that the deceased paid for it. This adjustment can significantly affect the amount of capital gains tax incurred when the beneficiary eventually sells the property.

By using the fair market value at the date of death, the beneficiary can potentially reduce capital gains tax liability, as appreciation during the period of the decedent's ownership is effectively ignored for tax purposes. This approach provides relief to heirs and makes it easier for them to manage assets without unfair tax burdens from prior appreciation that the decedent experienced.