Short answer
Often little or none if you sell soon. The IRS says the basis of inherited property is generally its fair market value on the date of death, which resets the gain. You only owe tax on growth after that date. The estate can also affect the figure, so ask a tax professional.
The stepped-up basis
IRS Publication 551 says the basis of inherited property is generally the fair market value of the property at the date of the individual's death. The estate's personal representative can elect an alternate valuation date in some cases. This is often called a step-up in basis. It means the gain is measured from the value at death, not from what the decedent paid.
What the basis means for a sale
If the house was worth a certain amount at death and you sell for about that amount, there is little or no taxable gain. If it sold for more, you owe tax on the difference, minus selling costs. If it sold for less, you might have a loss. Getting an appraisal near the date of death helps support the basis. Appraisals near the date of death are valuable evidence. If the IRS ever asks how you figured your basis, a professional appraisal from around that date is easier to defend than an online estimate. If the estate filed a federal estate tax return, the value on it can be the basis. If it did not, ask whether the executor can get an appraisal now. Keep the record in your tax file for as long as you own the property and for several years after you sell it.
Reporting and the executor's form
Publication 551 notes that beneficiaries receiving distributions should obtain Schedule A (Form 8971) from the estate executor for consistent basis reporting. Ask the executor for it. Sales are reported with Form 8949. A tax professional can confirm how to report yours.
An example with numbers
Suppose a house was worth $220,000 on the date of death. The heir sells it for $230,000 and pays $15,000 in selling costs. The IRS basis is the $220,000 date-of-death value, so the gain is about $10,000 before costs, and the costs offset it. Compare that with a case in which the parent bought the house for $60,000 decades ago. Without the step-up, the gain would be far larger. This is an illustration, not tax advice. The appraisal near the date of death matters, so ask the executor or an appraiser for one. Keep it with your tax records.
Does the home sale exclusion apply?
Publication 523 covers the $250,000 and $500,000 exclusions for a main home. An heir who did not live in the house usually will not meet the use test, but the step-up in basis already removes most of the gain in many cases. Ask a tax professional about your facts. If you want to sell without repairs, Kaizen Home Buyers buys as-is for cash. We make an offer within 24 hours, with no repairs and no agent commission, and can close in 14 to 30 days or on your date. Call 267-329-0084.