Taxes on Selling an Inherited House: The Basics to Ask a CPA

Taxes are a question for your CPA

Heirs often worry that selling an inherited house will bring a big tax bill. Sometimes it does, often it doesn’t, and the only way to know is to talk to a CPA or tax attorney. We don’t give tax advice. What this guide does is give you general context, so you know what to ask. It’s part of our resources on selling an inherited house.

The idea of stepped-up basis

When you sell property, capital gains are generally figured on the difference between the sale price and your basis (roughly, what the property counts as costing). For inherited property, the basis is often “stepped up” to the property’s fair market value around the owner’s date of death, instead of what the owner originally paid decades ago.

That matters a lot. A parent who bought a house for a small amount in the 1970s might have a large gain if they sold it themselves. An heir who inherits it and sells soon after might have little or no gain, because the basis reset to the value at death. The rules have details and exceptions, so this is where the CPA comes in.

Why sale timing and value records matter

Many families get an appraisal of the house as of the date of death. Ask the attorney or CPA whether you should. Keep it with the closing statement from the sale. If you’re still early in the process, see what to do first when you inherit a house in Minnesota.

Estate tax is a separate question

People often mix up capital gains and estate tax. Estate tax depends on the size of the whole estate, and most estates don’t owe it, but Minnesota has its own estate tax with its own threshold. It’s a question for the estate’s attorney and CPA, not something the house sale decides by itself.

Other tax items that come up

• Property taxes keep coming due while the estate owns the house. They’re prorated at closing.
• Homestead status may change after the owner’s death, which can affect property taxes. Ask the county.
• Income from renting the house before selling has its own tax rules.

What to bring to the CPA

• The date of death and any date-of-death appraisal
• The closing statement from the sale
• Receipts for major repairs or improvements made by the estate
• Any rental income while the estate owned it

An illustrative example of stepped-up basis

Here’s a simplified example with round numbers, for illustration only. Tax rules have details and exceptions, so your CPA is the final word.

If the heirs’ basis is stepped up to $280,000, their gain in this example is small or zero once selling costs are counted. If the parent had sold the house during their life, the gain would have been measured from $50,000. That difference is why date-of-death value matters so much.

When the house is sold for less than the date-of-death value

Sometimes an inherited house sells for less than its value at death, for example after winter damage or a slow market. That may create a loss rather than a gain. Whether and how a loss can be used depends on the circumstances. Ask your CPA.

Taxes that come due while the estate owns the house

• Property taxes keep coming due and are prorated at closing
• Homestead status may change after the owner’s death; the county can explain what that means for the tax bill
• Estate income tax returns may be needed if the estate has income, such as rent

Questions to bring to your CPA

1. What is our basis, and how should we document it?
2. Do we need a date-of-death appraisal?
3. How does timing of the sale affect us?
4. Does the estate need to file its own returns?
5. Is there any Minnesota estate tax question for the attorney?

How our offer fits in

Our written offer shows exactly how we reached our number. See how we calculate your cash offer. The settlement statement from closing shows every cost and the net proceeds. Both are useful records for your CPA.