When you inherit a house and sell it, two things usually go in your favor: the IRS treats your “cost basis” as the home’s value on the date the previous owner died, not what they originally paid for it, and any gain qualifies for long-term capital gains rates no matter how briefly you held the property. For heirs who sell within months of inheriting, the taxable gain is often small or zero. Before you can list the home, though, someone needs legal authority to transfer title, which almost always runs through probate.
Getting Legal Authority to Sell
You can’t sell a house that’s still titled in a deceased person’s name. Authority to transfer the property typically comes through probate, the court process that validates the will, pays off debts, and distributes what’s left.
The executor named in the will (or an administrator the court appoints if there’s no will) files the will and death certificate with the local probate court. The court responds by issuing Letters Testamentary when there’s a valid will, or Letters of Administration when there isn’t. That document is what proves to a title company that someone has the power to sign on behalf of the estate.
Timelines vary. A simple estate with cooperative heirs might close in a few months. A contested will or complicated assets can stretch past a year. During probate, the executor controls the home. If the estate needs cash to cover debts, taxes, or administration costs, the executor can petition the court to sell the home before it’s formally distributed to the heirs. Otherwise, once probate concludes, the executor signs a deed transferring title to you, and that deed gets recorded with the county recorder’s office. Only then do you hold clear title and can list the property.
Shortcuts exist. Many states offer simplified procedures for smaller estates, with thresholds and rules that vary. A growing number of states also recognize transfer-on-death deeds, which pass the property directly to a named beneficiary without probate. If the deceased set one up, you may be able to take title within weeks by recording the deed along with a death certificate.
What You’ll Owe in Capital Gains Tax
The tax code resets the cost basis of inherited property to its fair market value on the date of death.1Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Basis is the number the IRS compares against your sale price to figure your profit. For almost any other asset, basis is what the owner paid. For inherited property, it “steps up” to date-of-death value.
The practical effect is large. Suppose your mother bought a home for $120,000 in 1990 and it was worth $480,000 when she died. If she had given it to you during her lifetime, your basis would have been her original $120,000, and selling for $480,000 would mean a $360,000 taxable gain. Because you inherited it instead, your basis steps up to $480,000. Sell for $490,000 soon after, and you’re taxed on $10,000.
Getting the date-of-death value right is the most consequential financial step in the whole process. Order a professional appraisal from a licensed appraiser that reflects what the home was worth on or near the date of death. Comparable sales data and tax assessments can support the number, but a formal appraisal is the strongest documentation if the IRS questions your basis. Expect roughly $300 to $600 for a standard single-family appraisal; complex or high-value properties cost more.
Inherited property is automatically a long-term capital asset regardless of how long you’ve held it. Even a sale the day after distribution qualifies for long-term rates rather than ordinary income rates. For 2026, long-term capital gains are taxed at 0% on taxable income up to $49,450 single or $98,900 married filing jointly, 15% on income up to $545,500 single or $613,700 married filing jointly, and 20% above those thresholds. Most heirs land in the 15% bracket, and some with modest incomes and small gains owe nothing at the 0% rate.
High earners face an added 3.8% net investment income tax on top of the capital gains rate when modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly.2Internal Revenue Service. Questions and Answers on the Net Investment Income Tax That pushes the real top federal rate on an inherited home sale as high as 23.8%, before any state income tax.
If the home sells for less than its stepped-up basis, you have a capital loss. You can use it to offset other capital gains, and if losses exceed gains, you can deduct up to $3,000 per year against ordinary income and carry the rest forward.
If You Move In First
Holding the home and living in it can unlock a second tax break. The primary residence exclusion lets you exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you owned and used the property as your main home for at least two of the five years before the sale.3Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
For most heirs, the stepped-up basis already covers most of the gain. But if the home sits in a rapidly appreciating area and you hold it for years, the exclusion matters. An heir whose stepped-up basis is $500,000, lives in the home for two years, and sells for $700,000 can exclude the entire $200,000 gain.
Surviving spouses get a special rule. If your spouse died recently and you sell within two years of the death, you can claim the full $500,000 married exclusion on your individual return, provided the two of you would have met the requirements immediately before death.3Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
If There’s a Mortgage
Plenty of inherited homes still carry a loan. Federal law blocks lenders from calling that loan due when a relative inherits a residential property with four or fewer units.4Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions The Garn-St. Germain Act prevents enforcement of a due-on-sale clause when the transfer happens because of the borrower’s death and the property passes to a relative, spouse, or child. You can keep making payments on the original terms, at the existing interest rate, without being pushed into a refinance.
If you’re selling, the remaining balance is paid off from the proceeds at closing. The title company handles the payoff automatically, then wires the rest to you.
Reverse mortgages work differently. An FHA-insured Home Equity Conversion Mortgage becomes due within 30 days of the last surviving borrower’s death.5U.S. Department of Housing and Urban Development. Inheriting a Home Secured by an FHA-Insured Home Equity Conversion Mortgage Lenders can grant 90-day extensions while you sell or refinance. If the loan balance exceeds the home’s current value, which is common with reverse mortgages, the lender accepts 95% of the current appraised value as full satisfaction. You don’t owe the difference. If you want to keep the home instead, you’ll have to pay the full balance.
Protecting the House Until It Sells
An empty inherited home is a liability. Most homeowner’s policies limit or exclude coverage once a property has been vacant for 30 to 60 consecutive days. Call the insurance carrier before the home sits empty and ask about a vacancy endorsement or a standalone vacant-home policy. Burst pipes, vandalism, and injury claims on the property can all become your problem if coverage lapses.
During probate, the executor pays property taxes and maintains the home from estate funds. Once title transfers to you, those bills are yours. Falling behind on property taxes creates liens that can block a sale. Utilities, lawn care, and basic upkeep add up fast, especially if the home sits on the market for months.
What Comes Out of the Sale Price
The sale price is not what you take home. The biggest expense is usually the real estate agent commission. After industry changes that took effect in 2024, seller and buyer agent commissions are negotiated independently; you’re no longer automatically paying for the buyer’s agent, though you can agree to as part of negotiations. Commissions on the seller’s side commonly run 2.5% to 3% of the sale price.
Other seller closing costs generally add another 1% to 3%. These cover title insurance, escrow fees, recording fees, and any transfer taxes in your jurisdiction. Transfer tax rates vary widely by state.
Then there’s the work. A home that’s been lived in for decades often needs cleaning, cosmetic updates, and deferred maintenance before it hits the market. Keep every receipt. Improvements you make after inheriting the property get added to your stepped-up basis, reducing your taxable gain. New flooring, roof repairs, plumbing work, and similar expenses all count.
When You’re Not the Only Heir
If more than one person inherits the property, every co-owner on the title has to agree to the sale: the listing price, the offer you accept, and the closing documents. Unanimous agreement is harder than it sounds. One heir may want to sell immediately while another has emotional ties to the home or wants to rent it out.
A buyout is often the cleanest fix. One or more heirs purchase the others’ shares at a price based on a professional appraisal. The buying heir takes full title; the selling heirs walk away with cash. An independent appraiser removes most of the fight over price.
If talks stall, try mediation before court. A neutral mediator works with everyone toward a written agreement, costs a fraction of litigation, and keeps the decision inside the family.
As a last resort, any co-owner can file a partition action asking a court to force a sale. The court orders the home sold and divides proceeds by ownership share, minus legal fees. Partition cases are slow and expensive, and the property often sells for below market value at a court-supervised sale. Roughly half the states have adopted the Uniform Partition of Heirs Property Act, which requires a formal appraisal, gives co-owners a right of first refusal on the petitioning owner’s share, and favors open-market sales over courthouse auctions when a sale has to happen.
Reporting the Sale to the IRS
Report the transaction on Form 8949 and Schedule D with your Form 1040. Because inherited property is always long-term, the sale goes in Part II of Form 8949.6Internal Revenue Service. Instructions for Form 8949 In column (b), where you’d normally enter an acquisition date, write “INHERITED.” Your basis in column (e) is the stepped-up fair market value at the date of death. Totals flow from Form 8949 to Schedule D, where the IRS calculates your overall gain or loss.
The closing agent or title company will send you a Form 1099-S reporting gross proceeds, and the IRS gets a copy. Even if the stepped-up basis wipes out your taxable gain entirely, you still have to report the sale. If you skip it, the IRS system sees the proceeds and assumes the full amount is taxable until you prove otherwise.7Internal Revenue Service. Instructions for Form 1099-S
If you lived in the property long enough to qualify for the Section 121 exclusion, you still report the sale on Form 8949, but the excluded amount (up to $250,000 single or $500,000 married filing jointly) never hits Schedule D.3Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Keep your appraisal, closing statement, and improvement receipts for at least three years after filing, longer if the gain was significant.
One boundary worth knowing: capital gains tax is a separate matter from federal estate tax, which only applies to estates above $15,000,000 per individual for 2026 and almost no heir will encounter.8Internal Revenue Service. What’s New – Estate and Gift Tax Five states (Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) also impose an inheritance tax paid by the recipient, with rates that depend on your relationship to the deceased. If you or the deceased are in one of those states, check the specific exemptions before you plan around the sale.