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The capital gains tax on inherited property is measured from the date of death, not the original purchase. Your basis is generally the property's fair market value on that date — the stepped-up basis — which is why the tax usually runs far smaller than sellers fear.
What the deceased paid decades ago is irrelevant. The gain is measured from the property's value on the date of death. Sell soon after inheriting and the taxable gain is often small or zero.
Your basis in inherited property is generally the property's fair market value on the date of death, under the IRS basis rules for inherited property — not the price the deceased paid. That reset is why the tax usually runs far smaller than sellers fear. What the deceased paid decades ago is irrelevant; the gain starts from the value on the date of death.
The step-up applies whether or not an estate tax return was required. Estate tax and capital gains tax are two different things — the estate filed and paid any estate tax; your capital gains tax is only on appreciation after the date of death.
Your gain = sale price − stepped-up basis − any post-inheritance improvements. Three details decide whether the number holds up.
A date-of-death appraisal or well-documented market value is what defends the basis if the IRS asks. Without one, you're arguing from memory. Get the appraisal even if you plan to hold — it's much easier now than reconstructing years later.
The estate may have elected to value the property six months after death instead of on the date of death. The executor's estate filings tell you which applies. When property value fell after death, the alternate date can lower estate tax — but changes your basis going forward.
In community property states (CA, TX, WA, and 6 others), a surviving spouse generally gets a full step-up on BOTH halves — not just the deceased spouse's. That can zero out the gain on a later sale that would otherwise be six figures.
When several heirs inherit together, each takes a share of the stepped-up basis and reports a share of the gain. Sort out who sells, who buys the others out, and who reports what BEFORE the sale, not after.
Date-of-death fair market value + your post-inheritance improvements. If no appraisal exists, we work from comparable sales, tax records, and any available documentation to build a defensible number.
Sale price − selling costs − stepped-up basis − improvements = taxable gain. Often the answer is 'far less than you assumed'. Rate: automatically long-term (0, 15, or 20% for 2026) even if you sell a month after inheriting.
Higher earners add 3.8% net investment income tax on the gain. We file with the paper trail that supports the number — appraisal, chain of title, improvement records. See capital gains tax on real estate sale if you plan to make it your own main home first.
Why Heirs and Executors Trust Dimov Tax
The expensive mistake we see most: using the deceased's original purchase price as basis, or panicking at the 1099-S the closing agent sends the IRS (which shows gross sale price, not gain). Both make the tax look larger than it is.
Your fee depends on the work involved, not hours billed. Three things move it: whether a documented date-of-death value exists (or the basis has to be reconstructed); how long you held the property (and whether it was rented in the meantime — which triggers recapture); how many heirs are on the title.
To get a quote, tell us the date of death, whatever valuation exists, and the sale details. The fee comes back in writing before any work begins.
Six mistakes we see most often on inherited property sales. Each one makes the tax look larger than it actually is:
Sources: IRS Publication 551 (basis of inherited property, alternate valuation); Publication 559 (survivors, executors, and administrators); IRC §1014
A good fit if:
Planning to make it your main home first? See capital gains tax on real estate sale for the $250k/$500k exclusion. Renting it first? capital gains tax on investment property covers the depreciation-recapture layer. Or the full framework at capital gains tax planning.
Bring the date of death, the sale terms, and whatever valuation exists, and we establish the stepped-up basis, figure the actual gain, and file it with the paper trail that supports the number. Often the honest answer is that you owe far less than you assumed.
The step-up erases what people brace for. Confidential CPA review — no boilerplate estimates.
