Understanding "Stepped-Up Basis • What is Basis? In real estate, the “basis” refers to the property’s value for tax purposes. When a home is sold, the taxable gain is the difference between the sale price and the property’s basis. A higher basis reduces the taxable gain. • How Does It Apply to Inherited Property? For inherited properties, the basis is adjusted to the property’s fair market value (FMV) at the time of the original owner’s death. This adjustment is known as the "stepped-up basis." If the deceased originally bought a home for $100,000, and its value at their death was $300,000, the stepped-up basis is $300,000. If the inheritor sells the home for $300,000, there are no capital gains taxes. However, if the property is sold later for $450,000, the taxable gain is $150,000 (the difference between the sale price and the stepped-up basis). Example:
Other Tax Responsibilities
Inherited homes may come with additional tax obligations:
Property Taxes • Heirs are responsible for property taxes from the moment the home is inherited. • In many states, property values are reassessed at the current market value upon inheritance. This reassessment could result in significantly higher property taxes compared to what the original owner paid. • Some states, like California, offer exemptions for
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