If you’ve inherited something and are thinking about selling it, you may be wondering what it’s worth and if any of the proceeds will be taxable. Click through for an introduction to the complicated tax rules involved.
If you want to sell something you’ve inherited, the first question may concern the property’s worth. But a crucial second question is whether or not the proceeds from the sale will be taxed and, if so, at what rate. The answer depends on how the IRS calculates the property’s value and if a gain is realized upon the sale.
The value of inherited property is known as its basis. The basis is typically determined by the fair market value on the date of the original owner’s death. But if the estate filed a federal estate tax return (IRS Form 706), the executor may instead elect to use the value six months after the date of death. This alternate valuation is allowed only when the estate exceeds the federal exemption threshold and opts to report under special rules.
In 2001, that threshold was $675,000. In 2025, it has increased to nearly $14 million, meaning most estates today do not trigger a filing requirement. However, if an estate tax return was filed, the executor should have used IRS Form 8971 to report the FMV of distributed property. Beneficiaries receive a Schedule A, Information Regarding Beneficiaries Acquiring Property From a Decedent, from that form, which shows the official valuation. This value becomes your basis for calculating any gain or loss on the eventual sale.
If no return was filed and no FMV was provided, you are still responsible for establishing a basis. The IRS generally accepts documentation from a qualified appraiser. It’s important to keep all records because if the sale is reported to the IRS (for example, via Form 1099-K), you’ll need to back up your figures. Without proper documentation, or if you report a basis higher than what the IRS deems acceptable, you may face penalties or a tax bill with interest.
Tax rates
A capital gains tax will apply if the property has appreciated since you inherited it. Most inherited assets qualify as capital assets, so any gain from a sale would be reported on Schedule D, Capital Gains and Losses, of your tax return and taxed at capital gains rates based on your income. On the other hand, if the property sold for less than its basis, it results in a capital loss –– but losses on personal-use property are not deductible.
Working with a CPA can help ensure that the property is correctly valued, that the gain (if any) is accurately calculated and that you remain compliant with IRS reporting rules. When it comes to inherited property, a mistake in basis reporting can lead to unwanted penalties or delay your refund, so it’s worth getting it right from the start.
