Capital Gains Calculators
Capital Gains on Inherited Property Calculator
Inherited property gets a "step-up" to fair market value at death — wiping out every dollar of gain that happened during the original owner's lifetime, not just some of it.
Calculate your capital gains on inherited property
Compares the real tax law (step-up) against what you'd owe without it.
With step-up (actual law)
Basis = fair market value at death
Without step-up (hypothetical)
If basis carried over from the deceased
Inherited property is automatically treated as long-term for capital gains purposes, regardless of how long you've personally held it. This is a planning estimate — confirm your actual date-of-death value with an appraisal or estate records.
What the step-up in basis actually does
Under IRC Section 1014, when you inherit property, your cost basis isn't what the original owner paid — it's reset to the property's fair market value on the date of death (or an alternate valuation date, 6 months later, if the estate elects it). This isn't a discount or a partial break: it erases every dollar of appreciation that built up during the original owner's lifetime, completely and permanently.
Automatically long-term, no matter what
Normally, capital gains treatment depends on how long you've held an asset — over a year for the lower long-term rates, a year or less taxed as ordinary income. Inherited property skips this test entirely: it's automatically treated as long-term, even if you sell it the day after inheriting it.
Community property states: a bigger step-up for surviving spouses
In the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — both halves of a married couple's community property get a stepped-up basis when the first spouse dies, not just the deceased spouse's half. In common law states, only the deceased spouse's half steps up; the surviving spouse's own half keeps its original basis until they eventually pass it on too. This "double step-up" is a genuine, state-dependent advantage worth knowing if you're a surviving spouse.
What doesn't get a step-up
- Retirement accounts (IRAs, 401(k)s) — these are "income in respect of a decedent" and don't receive basis step-up treatment; inherited retirement account withdrawals are taxed as ordinary income under separate rules.
- Most assets in an irrevocable trust, unless the trust is structured so the assets are included in the grantor's taxable estate.
- Gifted property received during the giver's lifetime — this uses carryover basis instead (the giver's original basis), a completely different and generally less favorable outcome. If you're deciding between gifting appreciated property now versus leaving it as an inheritance, the step-up rule is a major reason many estate plans favor bequeathing over gifting.
Estate tax rarely enters the picture anymore
The federal estate tax exemption for 2026 is $15 million per individual ($30 million for a married couple), following the One Big Beautiful Bill Act — meaning fewer than 0.1% of estates owe any federal estate tax at all. For the vast majority of families, the step-up in basis is the far more relevant tax benefit, since it applies regardless of estate size and directly reduces the capital gains tax heirs actually pay.
Step-up in basis mechanics (IRC §1014, automatic long-term treatment) and the community property double step-up rule verified against multiple independent 2026 tax and legal guides, including a matching worked example. This is a planning estimate, not tax or legal advice — confirm your specific basis documentation and any state-specific rules with a tax professional.
Frequently asked questions
Before you sell inherited property.
What is a step-up in basis?
When you inherit property, your cost basis resets to its fair market value on the date of the original owner's death (or an alternate valuation date, if elected), rather than what they originally paid — this can eliminate most or all of the capital gains tax you'd otherwise owe.
Do I owe capital gains tax if I sell inherited property right away?
Often little or none — if you sell close to the date-of-death value, your gain (sale price minus the stepped-up basis) is typically small, since the basis already reflects roughly what the property is worth at that point.
Is inherited property always treated as long-term for tax purposes?
Yes — inherited property automatically qualifies for long-term capital gains treatment regardless of how long you've personally owned it, even if you sell the very next day.
What's the difference between inheriting property and being gifted it?
Inherited property gets a stepped-up basis to fair market value at death. Gifted property generally carries over the giver's original basis instead — a much less favorable outcome if the asset has appreciated significantly.
Does a surviving spouse get a bigger step-up in community property states?
Yes, in the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), both halves of community property step up at the first spouse's death — not just the deceased spouse's half, unlike common law states.