It is the tax rule that decides what an inherited home is treated as having cost you — and it is why heirs who sell soon after inheriting often owe little or no capital gains tax. This page is general information, not tax advice — talk to a CPA or tax professional on your own facts, especially where the estate is large or the ownership history is mixed.
Every asset has a basis — the figure the tax system treats as its cost when gain on a sale is figured. For property you buy, basis starts at what you paid. For property you inherit, Section 1014 of the Internal Revenue Code generally resets the basis to the home's fair market value on the date the previous owner died. That reset is the stepped-up basis: the gain on your later sale is measured only from the date-of-death value forward, and the appreciation from the previous owner's lifetime is not taxed to you. The full picture of selling a home's tax side starts with the companion guide, Do you pay capital gains tax when you sell your house?
The reset is to fair market value at death, in whichever direction that runs. If the home was worth less on the date of death than the previous owner paid for it, the basis steps down to that lower value — the previous owner's built-in loss disappears with the reset just as a built-in gain does. The rule is a fresh start at the date-of-death value, not a guaranteed increase.
A stepped-up basis is only as good as the date-of-death valuation behind it. The estate ordinarily documents what the home was worth on that date — commonly with a licensed appraisal made as of the date of death or another valuation the estate's records support — and that document becomes the heir's proof of basis at a later sale, possibly years later. If the estate elects the alternate valuation date under Section 2032 — valuing assets six months after death — the elected value is used instead. Keep the valuation with the home's permanent records. In Homeowner HQ, the same habit runs the monthly record: correct the facts about your home through your agent's fix-my-facts record, so the value and equity line is built on the real home — and when a home passes to an heir, the documented record of the home is already in one place.
How much of a married couple's home steps up depends on the state's property system. In community property states, a surviving spouse generally receives a full step-up on the entire property — both halves — under Section 1014(b)(6); the community property guide explains which states those are: What is community property? For jointly owned property in other states, generally only the deceased owner's share steps up, and the surviving owner's share keeps its original basis. How the deed was held — joint tenancy, tenancy by the entirety, community property — is therefore part of the tax answer, not just the probate answer.
The step-up belongs to inheritance — property that passes at death. A home given away while the owner is alive does not step up: the recipient takes the giver's original basis, called a carryover basis, and the appreciation from the giver's lifetime stays in the gain when the recipient later sells. That single difference — inherit versus receive as a gift — is one of the largest quiet forks in family home transfers, and it is a decision to make with a CPA or estate attorney before the transfer, not after.
When an heir sells, the gain is the sale proceeds minus the stepped-up basis — so a sale soon after inheriting, near the date-of-death value, generally produces little or no taxable gain. A gain or loss on inherited property is generally treated as long-term regardless of how long the heir personally held the home. The Section 121 main-home exclusion is a separate rule with its own ownership and use tests, covered in the capital gains guide — an heir who moves into the home and lives in it can build toward it over time. And the step-up is an income-tax basis rule, not an estate-tax rule: any estate tax is figured separately on the estate's own value, and the two calculations do not cancel each other out.
Homeowners are always free. Realtors pay $25/mo all-in and lenders pay $25/mo to join, at any book size, with no setup fee; messaging is included free for realtors, and lender messaging is $100/mo ($125/mo total for lenders). A lender-sponsored realtor joins for $0.
A stepped-up basis is the reset of an inherited asset's tax basis to its fair market value on the date the previous owner died. It comes from Section 1014 of the Internal Revenue Code. Basis is the figure the tax system treats as what an asset cost you, and gain on a later sale is figured from it — so when a home's basis steps up to its date-of-death value, the appreciation that built up during the previous owner's lifetime is not taxed to the heir, and the heir's gain is measured only from the date-of-death value forward. The reset runs in both directions: if the home was worth less on the date of death than the previous owner paid for it, the basis steps down to that lower value instead. This page is general information, not tax advice.
Take it in order. When the owner dies, the home's value is established as of the date of death — ordinarily with a documented valuation, such as a licensed appraisal or another valuation the estate's records support, because that number becomes the heir's basis. The heir's basis is that date-of-death fair market value, not what the previous owner originally paid. If the heir later sells, the gain is the sale proceeds minus that stepped-up basis, so a sale soon after inheriting, near the date-of-death value, generally produces little or no taxable gain. A gain or loss on inherited property is generally treated as long-term regardless of how long the heir personally held it. If the estate elects the alternate valuation date allowed under Section 2032 — six months after death — that elected value is used instead. Keep the date-of-death valuation with the home's records: it is the document the basis rests on if the IRS ever asks.
How much of a home steps up depends on how it was owned. In community property states, a surviving spouse generally receives a full step-up on the entire property — both halves — under Section 1014(b)(6). For jointly owned property in other states, generally only the deceased owner's share steps up, and the surviving owner's share keeps its original basis. Property received as a gift while the owner is alive does not step up at all — the recipient takes the giver's original basis, called a carryover basis, and the appreciation during the giver's lifetime stays in the gain calculation. A step-up also is not an estate-tax rule: it governs the heir's income-tax basis, while any estate tax is figured separately on the estate's own value. Mixed ownership histories have their own rules — that is CPA and estate-attorney territory, not a do-it-yourself estimate.