IRC §1014 · IRC §1223(9) · IRS Pub 551 · IRS Pub 523
Selling an Inherited House: The §1014 Step-Up Explained
Most heirs badly overestimate the tax bill on selling an inherited home. The reason is simple: your basis resets to fair market value on the date of death (the one exception, IRC §1014(e), is a home you gave the decedent within a year before the death that comes back to you or your spouse).
The step-up in one worked example
Your parent bought the house in 1995 for $85,000. When they died in 2025 it was worth $400,000. You sell it in 2026 for $450,000 with $27,000 in commissions and closing costs.
The $85,000 your parent paid never enters the math. The gain is $23,000 — not $365,000.
Sell fast, or move in first?
- Sell within a year of death — sale price is usually close to the FMV, so the taxable gain is small (or you have a small deductible loss if the market softened and you never used it personally).
- Move in for 2+ years, then sell — you can qualify for the §121 exclusion ($250k single / $500k MFJ) on any post-death appreciation. Trade-off: a LOSS on a sale while it's your home is nondeductible personal-use loss. (If you later convert it to a rental and sell it as a rental, only the drop after the conversion is deductible, measured from the lower of your basis or its value at conversion.)
- Convert to a rental — depreciation starts on the stepped-up building basis. See the rental depreciation guide.
Community property vs. joint tenancy
The state law of title matters. If you're the surviving spouse:
- Community-property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI, plus AK/TN by election): you get a FULL step-up on both halves of the home.
- Common-law joint tenancy (everywhere else): only the decedent's half steps up. Your half keeps its original basis.
- Your late spouse's time counts for §121. Unlike other heirs, a surviving spouse who has not remarried counts the late spouse's ownership and use of the home (IRC §121(d)(2)), and keeps the $500,000 cap for a sale within 2 years of the death if the couple met the joint-return tests just before it (§121(b)(4)).
Alternate valuation date (§2032)
The executor may elect to value the estate 6 months after the date of death instead — but only if that lowers both the gross estate and the estate tax (IRC §2032(c)), so only estates that owe federal estate tax can use it. Property the estate sells, distributes or otherwise disposes of within those 6 months is valued on that date instead. The value used sets the basis every beneficiary inherits with (§1014(a)(2)). Ask the estate's attorney whether the election was made.
Multiple heirs
If the home passes to several beneficiaries, each takes a proportional stepped-up basis. When the property is sold, each heir reports their share of the gain or loss on their own return. If one heir buys the others out first, that transaction is a purchase — the buying heir's basis in the acquired shares becomes the purchase price, not the stepped-up FMV.
Get a date-of-death appraisal
This is the practical must-do. The entire tax outcome hinges on the FMV at date of death. A retroactive appraisal from a licensed real-estate appraiser is defensible if the IRS asks. A guess is not. If no appraisal exists, get one now — an appraiser can build a reasoned opinion of value for a historical date.
Estate tax is a separate question
An estate tax return is needed only when the gross estate plus lifetime taxable gifts exceeds the basic exclusion — $13.99M for 2025 deaths, $15M for 2026 deaths — and tax is owed only on what is left after deductions and the exclusion; almost no estates pay it. See the estate tax calculator. Don't confuse it with the income tax you pay when you sell the inherited property.
Frequently asked questions
Do I pay taxes on a house I inherited?
Only on the post-death appreciation. Under IRC §1014, your basis is the fair market value on the date of death — not what the decedent originally paid. If you sell near that FMV, your taxable gain is close to zero. And the sale is automatically long-term under IRC §1223(9), so it can never be taxed as short-term ordinary income. Exception: if you (or your spouse) gave the home to the person who died within one year before the death and it comes back to you, there is no step-up — you keep their adjusted basis (IRC §1014(e)).
Is there an inheritance tax on a house?
At the federal level, no — there is no federal inheritance tax. There is a federal estate tax with a basic exclusion of $13.99 million for deaths in 2025 and $15 million for deaths in 2026 (very few estates pay it). A handful of states impose their own inheritance or estate tax with lower thresholds. Check your state.
How fast can I sell an inherited house?
Immediately. Under IRC §1223(9), inherited property is automatically long-term regardless of how quickly you sell. There is no waiting period for capital gains treatment.
What if I sell for less than the appraisal?
You have a capital loss. Whether it's deductible depends on how you used the property. If you held it for sale or investment, it's a deductible long-term capital loss. If you moved in and it was your personal residence when you sold, the loss is NOT deductible (personal-use losses never are). If you lived there and later converted it to a rental that was still a rental when you sold, a loss can be deductible, but only the drop after the conversion: it's measured from the LOWER of your adjusted basis or the fair market value on the conversion date (IRS Pub 544, Pub 551).
Do I qualify for the §121 home-sale exclusion?
Only if YOU (the heir) owned and used the home as your principal residence for at least 2 of the 5 years before the sale. Inheriting the property alone never satisfies §121 — the decedent's ownership and use do not carry over to the heir, except for a surviving spouse (§121(d)(2)), who counts the late spouse's ownership and use and keeps the $500,000 cap for 2 years after the death (§121(b)(4), if the couple met the joint-return tests just before it and the survivor has not remarried).
Do the math
Sources & References
Primary references used for this content
Basis of Assets
Inherited property basis = FMV on date of death.
View on irs.gov
26 U.S.C. §1014 — Basis of property acquired from a decedent
The statutory stepped-up basis rule.
View on law.cornell.edu
26 U.S.C. §1223 — Holding period of property
Automatic long-term treatment for inherited property.
View on law.cornell.edu
Selling Your Home
§121 exclusion mechanics.
View on irs.gov
Basis of Assets
IRS plain-language basis overview.
View on irs.gov
✓5 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.