Do you pay capital gains tax when you sell an inherited house?

The stepped up basis rule

Most heirs do not start with the parent's old purchase price. Under 26 U.S. Code 1014, property acquired by inheritance generally gets a basis equal to fair market value on the date of death.

Basis is the tax starting point used to figure gain or loss when property is sold. If the house went up in value while your parent owned it, the stepped up basis can keep that earlier increase out of your capital gain calculation.

This is a federal income tax rule. It is separate from probate, title work, mortgages and state inheritance tax.

How a date of death appraisal fits in

The date of death value is usually the key number. IRS Publication 551 says that if you did not receive a Schedule A reporting the estate tax value, your basis can be determined using the appraised value at the date of death for state inheritance or transmission tax purposes.

If a federal estate tax return, Form 706, was filed or required, IRS Publication 523 says the value listed on that return is your basis. Publication 523 also says inherited home basis can use the later alternate valuation date if the personal representative chose it.

If the estate still owns the home and the personal representative sells it during estate administration, the tax result can depend on how the estate holds or uses the former residence. If the house also has a loan, the tax issue is separate from the payoff issue discussed in inherited house with a mortgage.

Simple capital gain example

Here is the basic math. Amount realized is the sale price reduced by selling expenses, and gain or loss is the amount realized minus adjusted basis.

How the sale is reported

If the sale must be reported, individuals generally use Form 8949 for the sale of a capital asset and Schedule D to figure the overall gain or loss. IRS Publication 523 says that if you receive Form 1099-S, you must report the sale on Form 8949 even if you have no taxable gain to report.

A Form 1099-S shows proceeds. Your gain or loss still needs the adjusted basis and any selling expense treatment that applies to your return.

For inherited property, the Instructions for Form 8949 say to report the sale in Part II and enter "INHERITED" in the date acquired column. The same instructions say that if you did not receive Form 1099-S or a substitute statement, net proceeds equal gross proceeds minus selling expenses such as broker's fees, commissions, and state and local transfer taxes.

• Useful records include the date of death appraisal or estate tax value.
• Keep the closing statement that shows sale price and selling expenses.
• Keep Form 1099-S if one was issued.
• Seller costs can affect the tax math, and they are also part of the cash you receive at closing. For a plain English cost overview, see how much it costs to sell a house.

Long term treatment and the home sale exclusion

If the inherited house is a capital asset, IRS Publication 559 says the gain or loss is considered long term, regardless of how long you held the property. The Instructions for Form 8949 give the same general rule for property acquired by inheritance.

The home sale exclusion is different. It is not automatic just because your parent used the house as a home.

IRS Publication 523 says you meet the ownership test if you owned the home for at least 24 months out of the last 5 years before the sale. It also says you meet the residence test if you owned the home and used it as your residence for at least 24 months of the previous 5 years.

An heir who sells a parent's house without living in it usually will not meet the residence test. A surviving spouse can be different because a special rule may allow the survivor to count the late spouse's ownership and residence time.

State inheritance tax in Indiana and Ohio

Do not confuse inheritance tax with capital gains tax. The state notes below answer only the inheritance or estate tax point for modern deaths, not the federal capital gains calculation.

Heirs often ask this question during probate or family estate sales. If title is still in probate, the sale process may also involve estate steps that are separate from the tax rules, as explained on the probate sale page.

Selling to a cash buyer is one option for an inherited house, but the tax math still starts with proceeds, selling expenses and basis. A listing, a cash sale and an estate sale can all require the same basis records.

Frequently asked questions

Sources

Checked against each source on November 3, 2026. This page is general information, not legal or tax advice.

1. 26 U.S. Code 1014 (Legal Information Institute, Cornell Law School)
2. IRS Publication 551 (Internal Revenue Service)
3. IRS Publication 559 (Internal Revenue Service)
4. IRS Publication 523 (Internal Revenue Service)
5. Instructions for Form 8949 (Internal Revenue Service)
6. Indiana Inheritance Tax Information (Indiana Department of Revenue)
7. 2011 Annual Report, Estate Tax section (Ohio Department of Taxation)