How Is Inherited Property Taxed When Sold?

If you’ve been wondering how inherited property is taxed when sold, here’s the quick answer. In Texas, you won’t owe state inheritance tax because Texas doesn’t have one. However, you might owe capital gains tax if the property has increased in value since you inherited it. According to the IRS guide on inherited property, your tax bill depends on the “stepped-up basis” — the property’s value at the date of death.

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Can you sell uninhabitable house as-is in Texas

The Tax Benefit Most Heirs Don’t Know About

When someone passes away and leaves you a house, the IRS “steps up” the property’s value to its fair market value at the time of death.

Example:

If the home was worth $200K when you inherited it
And you sell it for $210K
You may owe capital gains only on the $10K increase — not the full $210K

If you sell it for exactly what it was worth at inheritance?
✅ You owe zero capital gains tax.

When Selling Inherited Property Could Mean Higher Taxes

You might owe more tax if:

The property appreciated significantly before you sold it
You rented the house out and then sold it later
You inherited it years ago and are only selling it now

In these cases, you’ll owe capital gains tax on the amount above the stepped-up basis.

What About Property Taxes or Estate Taxes?

Estate taxes don’t apply unless the estate is worth over $13.6M (federal, 2024)

Texas has no inheritance tax

Property taxes are separate and must be paid at closing — even for inherited property. If you’re behind, here’s how selling can help clear back taxes.

Need to sell without dealing with all the paperwork? Here’s how ➔