Inherited Property Capital Gains Calculator: Stepped-Up Basis and Tax on Your Sale

How Capital Gains on Inherited Property Work

Capital gains tax on inherited property has one unusual feature that makes it far gentler than selling something you bought yourself. The tax law resets your cost basis on the day the owner dies. The growth that happened during their life is never taxed as a capital gain, and only the growth after that day is yours to be taxed on.

That one idea explains most of what people want to know. The calculator above handles each step, and it helps to see what they are so you can check the result against your own paperwork.

1. Find your basis. For most inherited property this is the fair market value (FMV) on the date of death. If the estate chose the alternate valuation date, it is the value on that date instead. Special rules apply to property owned with a spouse and to gifts made shortly before death.
2. Add your improvements. Money you spend after you inherit on additions or lasting improvements raises your basis.
3. Find the amount realized. This is the selling price minus the costs of selling, such as commissions and legal fees.
4. Subtract. Amount realized minus your basis is your gain, or your loss if the number is negative.
5. Apply the long-term rates. The gain is taxed at 0%, 15% or 20% depending on your total taxable income, and the 3.8% net investment income tax can apply at higher incomes.

The IRS explains the basis rules in Publication 551, Basis of Assets and Publication 559, Survivors, Executors, and Administrators. The rate thresholds for 2026 come from Rev. Proc. 2025-32.

What Is a Stepped-Up Basis, and How Much Is It Worth?

A stepped-up basis (often called a step-up in basis) is the reset of an asset's basis to its fair market value at death. If the value had gone up since the owner bought it, the basis steps up. In the less common case where the value had dropped, the basis steps down to the lower value, and the loss that occurred before death cannot be used by anyone.

The table shows what the step-up is worth in one situation. In each row the house was worth $500,000 on the date of death and the heir sells it for $500,000, so there is no gain after the step-up. The heir is single, 65 or older, and has $40,000 of other income. The last column shows the federal tax the same sale would have cost if there had been no step-up and the heir had used the original cost.

The older and lower-cost the property, the bigger the benefit. A home bought decades ago for a small fraction of today's price can carry a very large built-in gain, and the step-up wipes it out. This is why the order in which you receive property matters so much, and it is the reason families are often advised to think carefully before giving away a house during life. We come back to that below.

To see your own number, put the owner's original cost in the optional box in the calculator. It will show the step-up and the tax it saved you.

How to Get the Date-of-Death Value of Inherited Property

The whole calculation depends on one number, so it is worth getting it right and getting it documented. Here is how the value is usually established, from strongest evidence to weakest.

• Schedule A (Form 8971). If the estate was large enough that the executor had to file a federal estate tax return (Form 706), the executor must also send each beneficiary a Schedule A that states the value of the property they received. When you get one, the value on it is the value you must use as basis. Publication 551 notes that certain beneficiaries must use the estate tax value.
• A date-of-death appraisal. For a house, a licensed appraiser can give a retrospective opinion of value as of the date of death. Many appraisers do this routinely for estates. Keep the report with your tax records.
• Publicly traded securities. Stocks and funds are valued from the market prices on the date of death, and your broker can usually give you the figure. The valuation rules are in the instructions for Form 706 and in Publication 559.
• A property tax assessment. This is the weakest evidence. Assessments follow local rules and often differ from market value, so use one only if nothing better exists, and do not rely on it for a large sale.

Do this early. An appraisal for a date long past is harder to get than one done soon after the death, and the sale price itself is not always proof of value on the earlier date. Selling quickly at a price that is clearly close to the market is helpful supporting evidence, but it is not a replacement for a documented value.

If you are an executor settling an estate, our probate timeline explainer walks through the stages of the process, and the simple will and estate basics explainer covers the basics of how estates are organized.

The Alternate Valuation Date: When the Value Is Measured Six Months Later

Occasionally the estate's personal representative will elect to value the estate's property six months after the date of death instead of on the date of death. This is called the alternate valuation date. It is allowed only for estates that file Form 706, and the election is made on that return, so it is rare. The usual reason is a drop in values during the six months after death that would reduce an estate tax bill.

If the election was made, the alternate value is your basis. The details of when an election is allowed are in the instructions for Form 706, and the executor will know whether one was made. If you are not sure, ask for your Schedule A (Form 8971), which will show the value to use.

Inherited Property Capital Gains: Worked Examples

Each example below is figured by the same engine as the calculator, so you can type the numbers in and match them.

How Much Tax Will You Owe If the Property Sells for More Than Its Date-of-Death Value?

If you sell for more than the date-of-death value, the extra is the gain, and the tax depends on your income. The table follows one single heir, 65 or older, with $40,000 of other income and no Social Security, who inherits a home worth $400,000 and sells it for various prices. Selling costs are left out to keep it simple.

Two things stand out. A sale at or near the value on the date of death costs little or nothing, so waiting for a higher price can be a trade between a better price and the tax on the growth. And the higher your other income, the more of the gain is taxed at 15% instead of 0%, so the tax on the same gain is not the same for every heir.

The tax is figured as the difference between your 2026 tax with the gain and without it, which also captures the extra Social Security that becomes taxable. A big gain can also raise your income for Medicare. The IRMAA surcharges that Medicare charges are based on your income from two years earlier, and the gain is included in it. Use the IRMAA calculator to see whether a sale would push you into a higher tier two years later.

Holding Period: Inherited Property Is Always Long Term

Ordinarily you must own an asset for more than a year for the gain to be long term, and short-term gains are taxed at your ordinary rates. Inherited property is different. Publication 559 says that if you sell property you inherited, your gain or loss is treated as long term, no matter how long you held it. Selling a week after the date of death gets the same long-term treatment as selling after five years.

This is why heirs who sell quickly do not face the higher short-term rates. The one thing the sale date does change is the tax year the gain lands in, which affects your other income, your Social Security taxation and your Medicare premiums.

Inheriting From a Spouse: Joint Property and Community Property Basis

Married couples own property in ways that change how much of it gets a step-up. There are two situations to know.

Property owned jointly with a spouse

When spouses own property as joint tenants with right of survivorship or as tenants by the entirety, and the spouse is the only other owner, the tax law treats it as a qualified joint interest. Half of the value is included in the decedent's estate. Publication 559 says the surviving spouse's basis is one-half of the property's cost basis plus the half of the value included in the estate. The survivor keeps the original cost on their own half and gets the new value on the half that belonged to the person who died. The calculator uses this rule when you choose "Owned jointly with a spouse."

Community property

Nine states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. A few more let couples opt in. Publication 551 explains that when one spouse dies, the entire value of the community property, including the survivor's half, generally becomes the basis of the whole property if at least half of the community interest is included in the decedent's gross estate. That is a bigger step-up than the joint-tenancy rule gives, and it is one reason the state where a couple lived matters in estate planning. Publication 555 covers community property in detail.

Two homes owned the same way in two different states can therefore produce different basis. If you moved between states, the rules of the state where the property was held and the couple's agreements decide, so ask the estate's tax preparer if you are not sure.

If your spouse has died and you are the one selling the family home you lived in, you may be able to exclude much of the gain with the home sale exclusion. See our home sale capital gains tax calculator, which includes the surviving spouse rule and compares it with the figures here.

The One-Year Gift Exception: When There Is No Step-Up

The step-up has an anti-abuse rule. A family could otherwise give an appreciated asset to a terminally ill relative, then inherit it back with a brand new basis. Publication 559 closes the loophole: if you or your spouse gave appreciated property to the person who died within one year before their death, and you or your spouse inherit it back from them, your basis is the decedent's adjusted basis immediately before death, not the fair market value.

The calculator handles this with a checkbox. When you tick it, it asks for the decedent's adjusted basis and uses it instead of the value at death. The fourth worked example above shows what it costs.

The rule covers appreciated property. It does not hurt you if the value had dropped, and it does not apply to a gift made more than a year before death, or to a gift to someone other than the person who died.

Inherited IRAs, 401(k)s and Annuities Do Not Get a Step-Up

The step-up applies to assets like houses, land, stocks and funds. It does not apply to retirement accounts and annuities. Money in a traditional IRA or 401(k) has never been taxed, so it is called income in respect of a decedent, and it is taxed to the beneficiary as ordinary income when withdrawn. The calculator on this page is not for those accounts.

Roth accounts are different in that qualified withdrawals are generally tax-free, but they follow their own distribution rules. To work out how much you must withdraw from an inherited IRA each year, and how to avoid a penalty, use our inherited IRA RMD calculator.

A beneficiary who inherits both a house and an IRA should keep the two in separate columns. The house is a capital asset with a stepped-up basis. The IRA is an income stream that adds to your taxable income, which in turn can change the rate your capital gain is taxed at. The retirement tax calculator helps you see the combined effect.

Selling an Inherited House: Keep It, Rent It, or Move In?

An inherited house leaves three basic choices, and the tax consequences differ.

• Sell soon. This is the simplest. The stepped-up basis means little gain if the sale is close to the appraised value. The costs of holding the house, such as taxes, insurance, utilities and upkeep, stop. The gain is long term.
• Keep it and rent it. You can depreciate the house over 27.5 years starting from your stepped-up basis (excluding the land). Depreciation lowers your tax each year, but when you sell, the depreciation you took is partly taxed as unrecaptured section 1250 gain at up to 25%. The calculator does not model that case.
• Move in and make it your home. You become eligible for the home sale exclusion only after you own and live in it for at least 24 months within the 5 years before the sale, and the exclusion covers $250,000 of gain ($500,000 on a joint return). Time the previous owner owned it does not generally count for you, unless you are the surviving spouse. See the home sale calculator.

If several siblings inherit one house, each heir has a basis in their own share, and the sale proceeds are divided. Settle in writing who pays the costs of holding and selling, and what happens if one heir wants to sell and another does not. Disagreements among heirs are a common reason inherited houses are held for years and lose value.

A house that must be sold to pay for care costs, or one that sits in a nursing home resident's estate, can also raise Medicaid questions. See our Medicaid eligibility calculator and the Medicaid spend-down calculator for the asset rules.

Inherited Rental Property and Depreciation Recapture

If the person who died owned a rental property and claimed depreciation, the step-up wipes the slate clean for you. Your basis is the new fair market value, so the depreciation the previous owner took is not added back when you sell. That is a significant benefit that does not exist if the property was given to you instead.

Starting from the date you inherit, you can depreciate the property again if you rent it out. Only the building is depreciated. The land is not, so the value at death should be divided between land and building, usually using the property tax assessment ratio or an appraisal. Depreciation you claim after inheriting reduces your basis, and the part of the gain that equals that depreciation is taxed at no more than 25% when you sell. This calculator is not built for that case, so use it only for a sale of property you did not depreciate, and ask a tax professional about the rest.

Gift Now or Inherit Later? The Capital Gains Difference

Many older people think about giving the family home to a child now to keep it out of the estate. From a capital gains view, that is usually the more expensive route.

• A gift keeps the giver's basis. The child takes over the parent's original cost, so all the growth over the parent's lifetime is taxable when the child sells.
• An inheritance resets the basis. The growth during the parent's life is never taxed as a capital gain.

The federal estate tax is not the reason to give early for most families. For 2026 the federal basic exclusion amount is $15,000,000 per person, so an estate smaller than that owes no federal estate tax. For these families, the capital gains saving on a highly appreciated house usually comes from holding it until death rather than giving it away.

A gift of a home also affects eligibility for long-term care benefits. Medicaid looks back 5 years at transfers made for less than fair value, and a gift made within that window can cause a penalty period during which Medicaid will not pay for long-term care. The Medicaid spend-down calculator explains how assets are counted, and an elder law attorney can explain the rules where you live. Nothing here is a recommendation to hold or give: it is a reason to run the numbers with a professional before you transfer a house.

Estate Tax, Inheritance Tax and Form 8971

Three different taxes get mixed up in conversations about inheritances. Only one of them is the capital gains tax this page is about.

• Federal estate tax. A tax on the estate, paid by the estate, only if its value is above the basic exclusion amount, which is $15,000,000 for 2026. Most estates are far below this.
• State estate or inheritance tax. A small number of states have one of these, and the rules, rates and exemptions differ. An inheritance tax is generally paid by the person who receives the property and depends on their relationship to the person who died. Check your state's revenue department.
• Capital gains tax. A tax on your gain when you later sell, which is what the calculator figures.

If the estate was large enough to have to file Form 706, the executor must give each beneficiary a Schedule A (Form 8971) listing the property and its estate tax value. In that case you generally must use the value reported, and using a different basis can bring penalties. If you receive one, keep it with your records. The calculator flags values above the exclusion so you know to ask whether one exists.

How to Report the Sale of Inherited Property

A sale of inherited property is reported on Form 8949 and Schedule D (Form 1040). On Form 8949 you write "INHERITED" in the column for the date acquired, and you use the basis described above. Because the gain is always long term, it goes in the long-term section.

If you sold a home and received a Form 1099-S, it will show the gross proceeds. Report that amount and the basis, and show the selling costs as an adjustment so the gain is correct. If you owe tax, none is withheld at closing, so consider an estimated payment or higher withholding from other income to avoid an underpayment penalty.

Keep the following: the date-of-death appraisal or Schedule A, the closing statement, receipts for improvements you made after inheriting, and a copy of the death certificate or estate documents showing the date of death.

Legitimate Ways to Lower the Tax on Inherited Property

• Document the value on the date of death. A solid appraisal protects your basis. A weak one invites an argument later.
• Add the right costs. Selling costs reduce the amount realized, and capital improvements after you inherit raise your basis. Routine repairs generally do not.
• Choose the tax year. If you can close in January rather than December, the gain moves to a different tax year, which can change which rate it falls into, how much Social Security is taxed, and which Medicare year it affects.
• Watch your other income. Part of a gain can be taxed at 0% if your taxable income is low enough. Taking fewer IRA withdrawals or Roth conversions in the sale year can keep more of it in the lower bands.
• Use the home sale exclusion if you qualify. If you move in and live there 2 years, the exclusion may remove up to $250,000 of gain.
• Take a loss when you have one. A loss on inherited investment or rental property can offset other capital gains and up to $3,000 a year of ordinary income. A loss on a personal home is not deductible.

These are ordinary planning steps. If the estate includes a business, farmland, foreign property, closely held stock, or property co-owned with non-spouses, the rules are more complicated and a tax professional is worth the fee.

Inherited Property Capital Gains FAQs

Official Sources and How We Calculate

The calculator sets your basis using the rules in IRS Publication 559 and Publication 551 for the inherited property types listed above. It figures the tax on the gain as the difference between your 2026 tax with the gain and without it, using the 2026 brackets, standard deduction and capital gain thresholds in Rev. Proc. 2025-32, the 3.8% net investment income tax, and the Social Security taxation formula. It also applies the $6,000 senior deduction when it affects your taxable income.

Estimate only, federal tax only. Your tax return and a tax professional decide the final amount. We do not store what you enter.