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Selling inherited property: the step-up erases most of it, if you use it right

Inherited assets get a new basis equal to the date-of-death value. Sell soon after and there is almost no gain. Wait ten years and the gain is yours. Most of the tax on inherited property comes from not knowing which assets got the step-up.

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The number

What this sale costs if nothing is planned

Parent's house worth $900,000 at death (basis stepped up), sold 18 months later for $980,000, single heir, 2026

LayerRate (source below)Amount
Gain after step-up and selling costs (about $30K)15%about $4,500
Net investment income tax3.8% if MAGI over $200Kabout $1,100
State (varies)small
Totalunder $6,000 on a $980,000 sale

Rounded, illustrative, assumes no other income in the year of sale. See Sources and review at the bottom of the page.

The options, in plain language

Five ways this tax gets paid, spread or shrunk

  1. Sell inside the step-up window. Get a date-of-death appraisal, keep it, and sell before appreciation rebuilds a gain. Selling costs are deductible against the small gain.
  2. Keep it as a rental with a fresh basis. The stepped-up basis is your new depreciation base; a $900,000 house depreciates about $27,000 a year. If you keep it, this is the reason.
  3. 1031 if it became a rental. Inherited rentals are ordinary 1031 property once held for investment.
  4. Inherited IRAs are different. No step-up. Non-spouse heirs must empty the account within 10 years (annual RMDs if the owner had started). The planning is which years to take it.
  5. Prop 19 and state estate taxes. California reassesses inherited property for property tax unless it is your primary residence; 12 states plus DC have estate taxes at $1M to $7M. Check both before holding.
Who this is written for: people who have owned the asset for years, often decades, and are selling once, usually around retirement. If you are buying and selling frequently, different rules (dealer status, ordinary income) apply and this page is not for you.

Six questions to bring to your CPA

  1. Which assets got a step-up, and do we have date-of-death values?
  2. Was the house community property (full step-up) or joint (half)?
  3. Is the inherited IRA on a 10-year clock, and which years should I take it?
  4. If I keep the rental, what is the new depreciation schedule?
  5. Prop 19 property-tax reassessment, and can I keep the parent's base?
  6. Does my state have an inheritance or estate tax on this?

The deadlines that decide it

  • Appraisal: as of the date of death, ordered promptly.
  • Inherited IRA: 10 years from the year after death; annual RMDs may apply.
  • Prop 19 (CA): primary-residence exclusion claimed within a year.
  • Estate tax return: 9 months after death if required.

Common questions

Straight answers

Do I owe tax on what I inherited?

Not income tax on the inheritance itself. Tax applies to gain after the date of death, and to withdrawals from inherited retirement accounts.

The house was in a trust. Does it still step up?

A revocable living trust: yes. An irrevocable trust funded years ago: usually no. Ask.

I inherited half from my mom and my dad still lives there.

Your half stepped up; his did not. Selling now taxes his gain; his passing later steps up his half.

Can I sell inherited stock immediately with no tax?

Essentially yes: basis equals the date-of-death value, so only movement since then is taxed.

Audit trail

Sources and review

Reviewed for the Retirement Literacy Foundation, a 501(c)(3) education nonprofit. Prepared by Hans Goldstein, retirement educator; IRS Special Enrollment Examination Parts 1, 2 and 3 passed, enrollment pending; California licensed insurance professional #4273294. Informational only. Not tax, legal or investment advice. Every figure below cites its source so your CPA or attorney can check it.

Figures are 2026 federal amounts and 2025 California rates unless stated. Examples are illustrative, rounded, and assume no other income; your numbers will differ. Last reviewed September 21, 2026.

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