Inherited Homes

Inherited Home Taxes: Basis Questions for Your CPA

The income tax side of selling an inherited home, in plain words, with the IRS pages behind each point and a list of questions to bring to your CPA.

Updated November 2026 · Rudy Flores · Coldwell Banker West

Two taxes, two rulebooks: the county handles property tax, and the IRS sets the rules for income tax on a sale. This page is about the second one, so you can walk into your CPA’s office with the right questions and the right paperwork.

General information, not tax advice. Rudy is a real estate agent; your CPA applies these rules to your situation.

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Two taxes, two sets of rules

Property tax is the County Assessor’s area: the reassessment at the date of death, and Prop 19 if a child keeps the home. The Prop 19 example on the main guide shows the arithmetic.
Income tax on a sale follows the IRS rules on basis, and your CPA applies them.

The two don’t mix: Prop 19 is a property tax rule, and it does not set your income tax basis.

The starting basis: the value on the date of death

IRS Publication 551 (revised December 2025) says the basis of inherited property is generally its fair market value at the date of death. The publication lists the exceptions: the alternate valuation date, if the personal representative elects it; special-use valuation for farm or business property; and the value reported on Schedule A of Form 8971 when an estate files Form 706.

IRS Publication 523, the guide to selling a home, repeats the same date-of-death rule for an inherited home.

How the value is documented is a question for your CPA. Common starting points are the probate referee’s appraisal in a court estate or a licensed appraiser’s date-of-death appraisal. Rudy can share recent nearby sales around that date as a first look (it is not an appraisal).

Married owners in California: community property

Publication 551 lists California as a community property state. When either spouse dies, the total value of the community property generally becomes the basis of the entire property, as long as at least half of the community interest is includible in the decedent’s gross estate.

The publication’s own example: a home with an original basis of $80,000 is worth $100,000 at the first death, so each half takes a $50,000 basis. How the deed was titled (community property, joint tenancy or a trust) is a question to bring to your CPA.

A worked example

Hypothetical figures: a home worth $880,000 on the date of death, sold with selling costs of 6% of the price. The comparison your CPA starts from, before any improvements or other adjustments.

Amount realized against a date-of-death basis (hypothetical figures)
Case	Sale price	Selling costs (6%)	Amount realized	Date-of-death value	Gain or loss before adjustments
Sold soon after the date of death	$900,000	$54,000	$846,000	$880,000	−$34,000
Sold two years later	$960,000	$57,600	$902,400	$880,000	+$22,400

The second case is before any improvements your CPA may add to the basis. A loss on a home that was never your own residence is a separate question for your CPA. The 6% is an assumption: commission isn’t set by law, each brokerage sets its own, and it’s negotiable. Hypothetical figures, not tax advice.

The home sale exclusion: when it can come into play

Publication 523 describes the exclusion of up to $250,000 of gain, or $500,000 for a married couple filing jointly, for a home the seller owned and lived in for 24 months each (730 days of residence) in the five years before the sale.

A surviving spouse may use the $500,000 figure if the home is sold within 2 years of the spouse’s death, the surviving spouse has not remarried and the other conditions are met, and may count the late spouse’s ownership and use time. An heir who makes the home their own main home may later meet the tests on their own; ask your CPA how the dates count.

The home sale gain and exclusion estimator runs the numbers, and a surviving parent who later moves can look at the downsizing calculator.

Questions to bring to your CPA

What value and date should we use, and how should it be documented?
Should the estate elect the alternate valuation date?
How did the title read (community property, joint tenancy, trust), and what basis does that give each owner?
Which costs after the date of death count as improvements?
If the home was rented, how is depreciation handled?
Who reports the sale: the estate, the trust or the heirs?
How does California treat it?
If the sale price is below the date-of-death value, how is that handled?

Ask about sales near the date of death

Ask About Sales Near the Date of Death

Give Rudy the address and the date of death. He can share recent nearby sales around that date to bring to your CPA or appraiser; for tax reporting, your CPA may want a licensed appraiser’s date-of-death appraisal. This is not an appraisal.

Common questions

What is a “stepped-up” basis?

It is the everyday name for the rule in IRS Publication 551: the basis of inherited property is generally its fair market value on the date of death, not what the original owner paid.

Does Prop 19 change my income tax basis?

No. Prop 19 is about property tax and the Assessor. Your income tax basis comes from the IRS rules described above.

If I sell soon after inheriting, is there a gain?

The gain or loss is measured from the date-of-death value, so a sale close to that date at a similar price can show little of either. Your CPA works out the actual figure.

Where do I get a date-of-death value?

In a court estate the probate referee values the property. Otherwise a licensed appraiser’s date-of-death appraisal is common, and Rudy can share recent nearby sales around that date to bring to your CPA or appraiser; that is not an appraisal.

Can a surviving spouse still use the larger exclusion?

IRS Publication 523 says a surviving spouse who has not remarried may use the $500,000 figure if the home is sold within 2 years of the spouse’s death and the other conditions are met.

Keep exploring

Inherited a home? — The first steps, the paths and keep-or-sell numbers.
Home sale gain and exclusion — How much of a gain the exclusion may cover.
Seller net proceeds — Sale price less the costs of selling.
Selling through probate — The court steps, from letters to closing.
Selling a trust home — A successor trustee’s path to a sale.
Request a home value — A written comparison from recent sales.

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Sources

General information for orientation, not legal, tax, financial or appraisal advice. Details change; confirm anything that matters with the official source, your lender and your agent.