What Is the Stepped-Up Basis on an Inherited Home?

The stepped-up basis is one of the biggest tax advantages of inheriting a home. When you inherit property, its cost basis for tax purposes is reset, or stepped up, to the fair market value on the date the owner died, rather than what the owner originally paid decades earlier.

Why it matters when you sell

Because your basis is the date-of-death value, you are taxed only on appreciation between that date and the date you sell, not on the lifetime of gains the original owner accumulated. If you sell soon after inheriting, the gain is often small or zero. Example: parents bought for 150,000 dollars, the home is worth 800,000 dollars at death, and you sell for 810,000 dollars. Your taxable gain is roughly 10,000 dollars, not 660,000. Keep documentation of the date-of-death value, such as the probate referee's appraisal.