Do you pay capital gains tax when you sell an inherited house?
By Sam Yusufi, Certified Probate & Trust SpecialistUpdated
Often little or none, if you sell soon after inheriting. Inherited property usually gets a stepped-up basis, meaning its value for tax purposes resets to what it was worth on the date of death. Capital gains are then figured from that value, not from what the original owner paid. Confirm the details with a CPA.
How stepped-up basis works
Say your parents bought their home in 1985 for $150,000, and it was worth $1,100,000 when your mother passed. If the family sells a few months later for $1,120,000, capital gains are usually figured from about $1,100,000, not $150,000.
That's why selling soon after inheriting often means little or no capital gains tax. Holding the house for years while it gains value is a different story, so it's worth a conversation with the estate's CPA before deciding.
Good questions to ask your CPA
- Should we get a date-of-death value for the home in writing?
- How will the sale be reported, and by whom?
- Which costs of preparing and selling the home can reduce any gain?
If anyone in the family is thinking about keeping the house instead, ask about Proposition 19 too. It can change the property tax bill.