Inherited property · 26 U.S.C. §1014Selling an inherited house: the stepped-up basis
When you inherit a house, its tax basis is generally its fair market value on the date of the owner's death, not what the owner paid (26 U.S.C. §1014(a)(1)); the estate may elect the alternate valuation date instead (§1014(a)(2)). That covers property received by will or inheritance and property the owner held in a revocable living trust (§1014(b)(1)–(2)). In a community property state, the surviving spouse's own half of community property also gets a new basis if at least half of the whole community interest was included in the decedent's estate (§1014(b)(6)). So if a parent bought for $90,000, the house was worth $400,000 at death and you sell for $420,000, the gain is measured from $400,000. One exception: if appreciated property was given to the decedent within one year before death and passes back to the donor or the donor's spouse, the donor takes the decedent's old basis (§1014(e)).
What §1014 says
Basis
Fair market value at the date of death, or the alternate valuation date if elected (§1014(a)(1)–(2)).
Which property
Bequest, devise or inheritance; property in a revocable trust the decedent controlled (§1014(b)(1)–(2)).
Community property
The surviving spouse's half also steps up if at least half the community interest was in the decedent's estate (§1014(b)(6)).
Gift-back rule
Appreciated property given to the decedent within 1 year of death that returns to the donor or spouse keeps the decedent's old basis (§1014(e)).
Example
Bought $90,000; worth $400,000 at death; sold for $420,000 → gain measured from $400,000, not $90,000.
What heirs should gather before selling
- A date-of-death appraisal or other evidence of fair market value.
- The death certificate, letters or trust documents showing who can sign the deed.
- Records of any improvements made after death, for the tax adviser.
What the TC and title company need
- Authority to sell: letters testamentary, a successor trustee's certificate or a court order.
- Whether a probate court must approve the sale in that state.
- The seller's Form 1099-S information for each heir or the estate.
Questions heirs ask
Do I pay capital gains tax when I sell an inherited house?
Only on the gain above its value at the date of death, because the basis generally steps up to that value (26 U.S.C. §1014(a)).
Does a house in a living trust get a stepped-up basis?
Yes, property in a revocable trust the decedent could revoke is treated as passing from the decedent (§1014(b)(2)).
Does the surviving spouse get a stepped-up basis?
In community property states, the surviving spouse's half also steps up when at least half the community interest was included in the decedent's estate (§1014(b)(6)).
Related guides
Collect the date-of-death appraisal, letters and trust documents as documents on the deal in ClosingCode, with tasks to request each one early.
Start free trialSource: 26 U.S.C. §1014 (govinfo.gov, read October 25, 2026).
General information, not legal or tax advice. ClosingCode is software; it is not a law firm, tax adviser or brokerage. This guide is not a substitute for the advice or services of an attorney.