Inheriting stocks, a house or other property can come with a big tax advantage. The basis is generally reset to the value at the date of death, so only growth after that date is taxed when you sell, and it is always long-term.
This guide explains the stepped-up basis, the long-term rule, the exceptions for recent gifts and community property, and gives worked examples, using IRS Publications 551 and 544 and Topics 703 and 409.
Basis is generally what you paid for an asset and is used to figure gain or loss when you sell. For inherited property the IRS says that, generally, the basis is the fair market value (FMV) of the property at the date of the individual's death, or the FMV on the alternate valuation date if the personal representative for the estate chooses it. Two less common methods are the special-use valuation for farm or business real property and the decedent's adjusted basis in land excluded from the estate through a qualified conservation easement. When an estate is required to file a federal estate tax return (Form 706), beneficiaries generally receive a Schedule A (Form 8971) from the executor showing the estate tax value of what they received, and certain beneficiaries are required to use that value as their initial basis. Form 8971 is not required when the Form 706 is filed solely to elect portability, make a generation-skipping transfer tax election or as a protective filing. If you do not get one, the appraised value at the date of death for state inheritance or transmission tax purposes can be used.
Publication 544 says that if you inherit property, you are considered to have held it longer than one year regardless of how long you actually held it. So the lower long-term capital gains rates apply to a sale shortly after inheriting; see our short-term versus long-term guide and capital gains tax brackets guide.
| Case | Basis | Sale | Result |
|---|---|---|---|
| Parent bought stock for $20,000; worth $100,000 at death; you sell for $110,000 | $100,000 | $110,000 | $10,000 long-term gain (not $90,000) |
| Same stock sold for $90,000 | $100,000 | $90,000 | $10,000 long-term loss |
| Inherited house worth $400,000 at death, sold for $415,000 with $15,000 selling costs | $400,000 | $415,000 less $15,000 | $0 gain |
These are our illustrations using the IRS rules that a gain is the amount realized over the adjusted basis. Selling costs reduce the amount realized, and later improvements raise your basis while depreciation lowers it. If you move into the house and sell it as your main home you may also qualify for the home sale exclusion; see our home sale guide.
The IRS says the date-of-death rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within one year before death; your basis is then the decedent's adjusted basis immediately before death. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), when one spouse dies the total value of the community property, even the surviving spouse's half, generally becomes the basis of the entire property, as long as at least half the value is includible in the decedent's gross estate. A loss on selling personal-use property such as a home or car is not deductible.
Basis rules are separate from estate and inheritance taxes, which the estate or heirs may owe in some places; see our inheriting money guide and state estate tax guide. Report sales on Form 8949 and Schedule D; see our Schedule D guide.
IRS: Publication 551, Basis of Assets (12-2025), IRS: Publication 544, Sales and Other Dispositions of Assets, IRS Topic 703: Basis of assets, IRS Topic 409: Capital gains and losses.