Capital Gains Tax on Inherited Property & Step-Up in Basis (2026)
Inherit a house or a stock portfolio and the tax math is friendlier than most people expect: your cost basis usually resets to the value on the date of death, so only the gain after you inherit is taxed.
Reviewed & updated · Federal law · Not tax advice
When you inherit property, your basis is generally “stepped up” to its fair-market value on the decedent's date of death (IRC §1014). If you sell soon after, your taxable gain is often near $0. Inherited property is also automatically treated as long-term (0/15/20% rates), no matter how briefly you hold it.
What “step-up in basis” means
Your capital gain is sale price minus your cost basis. For inherited assets, IRC §1014 resets that basis to the property's fair-market value on the date the previous owner died — erasing all the appreciation that built up during their lifetime for income-tax purposes. Sell right away and there's little or no gain; hold for years and only the growth after the date of death is taxed.
Always long-term
Inherited property gets long-term treatment automatically under §1223(9), so gains are taxed at the favorable 0%, 15%, or 20% rates even if you sell within days. You don't have to hold it for a year first.
How to figure the gain
Take the sale price (net of selling costs) and subtract your stepped-up basis — the date-of-death value. That's your long-term gain (or loss). Our printable worksheet lays it out:
Wrinkles worth knowing
- Alternate valuation date: an estate may elect to value assets 6 months after death (§2032) — confirm with the executor which value is your basis.
- Community-property states: a surviving spouse often receives a full (double) step-up on the entire asset, not just the half they didn't already own.
- It can be a step-down: if the asset was worth less at death than the deceased paid, the basis resets downward.
- Selling an inherited home: the §121 home-sale exclusion only applies if you owned and lived in it 2 of the last 5 years — most heirs rely on the step-up instead. See our home-sale guide.
- Inherited IRAs/401(k)s do not get a step-up and follow separate distribution rules.
Ready to run the numbers? Open the calculator, enter your stepped-up basis as the cost basis, and it will show the federal and state tax with the formula.
Frequently asked
How is capital gains tax calculated on inherited property?
Your basis is stepped up to the property's fair-market value on the date of death (IRC §1014). Your taxable gain is the sale price minus that stepped-up basis, taxed at long-term capital-gains rates (0%, 15%, or 20%).
Do I pay capital gains tax if I sell inherited property right away?
Usually very little. Because the basis resets to the date-of-death value, selling soon after inheriting typically produces little or no gain. Inherited property is automatically treated as long-term, so any gain gets the lower long-term rates.
What is a step-up in basis?
A reset of an inherited asset's cost basis to its fair-market value on the previous owner's date of death, under IRC §1014. It erases the appreciation that occurred during the decedent's lifetime for income-tax purposes.
Does inherited property qualify for the home-sale exclusion?
Only if you use it as your own main home and meet the 2-of-5-year ownership and use test. Most heirs who sell rely on the step-up in basis instead of the §121 exclusion.
Is there a step-up on an inherited IRA?
No. Inherited traditional IRAs and 401(k)s do not receive a step-up in basis and are taxed under separate distribution rules when you withdraw.