Short Answer: In most cases, no — or very little. When you inherit property, it typically receives a "step-up in basis" to its fair market value on the date of death. This means capital gains tax is generally only owed on appreciation that happens after you inherit the property, not on the appreciation that happened during the original owner's lifetime.

This article is general information based on real estate experience — it is not tax or legal advice. Always consult a CPA or estate attorney about your specific situation.

Why This Surprises So Many Executors and Administrators

Many people assume that selling an inherited home means paying capital gains tax on the full difference between what the original owner paid decades ago and today's sale price. That assumption often stops people from selling — or causes real anxiety about a tax bill that, in most cases, doesn't actually apply the way they fear.

What "Step-Up in Basis" Actually Means

• The property's "basis" (the number used to calculate gain or loss) resets to its fair market value as of the date of death — not the original purchase price.

• If the home is sold shortly after inheriting it, at close to that same fair market value, there's often little to no taxable gain at all.

• Capital gains tax only applies to appreciation between the date of death and the date of sale.

• Selling costs — such as agent commissions, escrow fees, and other costs of sale — can typically be deducted from the final sale price, further reducing any taxable gain.

A Simple Example

If a parent bought a home in 1985 for $80,000, and it's worth $700,000 on the date they pass away, the basis steps up to $700,000. If the heirs sell it for $720,000 shortly after, they'd only owe capital gains tax on the $20,000 gain — not the $640,000 difference from the original purchase price.

When Capital Gains Tax Can Still Apply

• If the property is held for a significant time after inheriting it and continues appreciating before it's sold

• If the property was placed in certain types of irrevocable trusts that don't qualify for a step-up

• If multiple appraisals or valuations conflict, creating disputes about the true date-of-death value

Why an Accurate Date-of-Death Valuation Matters

Getting a proper appraisal or professional valuation as close to the date of death as possible is one of the most important steps an Executor or Administrator can take — it establishes the basis and can meaningfully reduce (or eliminate) any future tax liability when the property sells.

Frequently Asked Questions

Do I pay capital gains tax on a house I inherited in California?
In most cases, little to none — thanks to the step-up in basis, tax is generally only owed on appreciation after the date of death, not the property's full lifetime appreciation.

What is a step-up in basis?
It's a tax rule that resets an inherited asset's cost basis to its fair market value on the date of the original owner's death, rather than what they originally paid for it.

Do I need an appraisal to establish the step-up in basis?
Yes, generally a professional appraisal or valuation as of the date of death is strongly recommended to accurately establish the new basis and support it if ever questioned.

Does this apply to property held in a trust?
Often yes, if the trust is structured as a revocable living trust — but rules vary, so this should be confirmed with a CPA or estate attorney based on the specific trust terms.

Wondering What This Means for Your Specific Property?

Every estate and every property is different. If you're an Executor or Administrator trying to understand your options — including how timing your sale could affect taxes — reach out for a straightforward conversation.

📞 714-944-3300
✉️ Nancy@AndreasonGroup.com
🌐 AndreasonGroup.com

About Nancy Andreason
Nancy Andreason is a Probate & Trust Real Estate Specialist with 20 years of full-time real estate experience. She has helped families sell more than 125 probate properties throughout Orange County and Los Angeles County.