Inherited a home, stocks, or other assets? This free inherited property capital gains calculator helps you instantly estimate how much federal capital gains tax — if any — you’ll owe when you sell. Unlike a standard capital gains calculation, inherited property follows special IRS rules. Your cost basis is not what the original owner paid. It is automatically “stepped up” to the fair market value (FMV) on the date of death under IRC §1014 — one of the most powerful tax advantages in the US tax code.
Enter four numbers: the Fair Market Value at the date of death, any capital improvements you made, your sale price, and your selling expenses. Our capital gains on inherited property calculator does the rest — showing your taxable gain, applicable long-term tax rate, estimated federal tax, and your real after-tax proceeds. No login. No subscription. Completely free.
Inherited Property Capital Gains Calculator
Calculate your capital gains or losses on inherited property.
What Is the Stepped-Up Basis Rule for Inherited Property?
When you inherit an asset — a house, stocks, land, or a business interest — the IRS resets your cost basis to the fair market value (FMV) of the property on the date the original owner died. This reset is called the stepped-up basis, and it is governed by Internal Revenue Code §1014.
Without the stepped-up basis rule, heirs would owe capital gains tax on all appreciation since the original owner purchased the asset — potentially decades of gains accumulated over a lifetime. With the step-up, that entire history is erased for tax purposes. You only owe capital gains tax on appreciation that occurs after the date you inherit.
The Core Formula
| Your Taxable Gain = Sale Price − FMV at Date of Death NOT: Sale Price − What the Original Owner Originally Paid |
Step-Up in Basis — Worked Example
Your parent purchased a home in 1990 for $80,000. By the time they passed away, the home was worth $520,000. You inherit it. The table below shows the dramatic difference:
| Without Step-Up | With Step-Up (§1014) | |
| Your Cost Basis | $80,000 | $520,000 |
| Sale Price | $560,000 | $560,000 |
| Taxable Gain | $480,000 | $40,000 |
| Federal Tax (15%) | $72,000 | $6,000 |
| Your Tax Savings | — | $66,000 |
| Key IRS Rule — IRC §1223(11) Inherited assets are ALWAYS treated as long-term capital gains regardless of how long you personally hold them. Even if you sell the same day you inherit, you pay the long-term rate (0%, 15%, or 20%) — NOT the short-term rate (up to 37%). This is an automatic, permanent benefit. |
Assets That DO Receive a Stepped-Up Basis
- Real estate (primary homes, investment properties, land)
- Individual stocks, ETFs, mutual funds, and bonds
- Bank accounts and investment portfolios
- Business interests and partnership stakes
- Artwork, collectibles, and personal property
- Cryptocurrency (treated as property by the IRS)
Assets That Do NOT Receive a Stepped-Up Basis
- Traditional IRAs, 401(k)s, 403(b)s — taxed as ordinary income when distributed
- Annuities — distributions taxed as ordinary income
- Assets held in irrevocable trusts (in most cases)
- Property gifted to the deceased within one year before death (IRS Publication 551)
How to Calculate Capital Gains on Inherited Property
The Step-by-Step Formula Our Calculator Uses
Our inherited property capital gains calculator applies the exact IRS formulas — the same four steps an accountant would use. Here is what happens inside the tool:
Step 1 — Your Stepped-Up Basis (FMV at Date of Death)
Your starting basis is the Fair Market Value of the property on the date the decedent died — not what they originally paid. This is established by:
- Real estate: a qualified appraisal from a licensed appraiser
- Publicly traded stocks: average of the high and low trading price on the date of death
- The estate executor’s records or Form 706 (if filed)
- IRS Schedule A to Form 8971 (if the estate filed Form 706 for estate tax purposes)
| Important — Consistent Basis Requirement If the estate was required to file Form 706, you may be required by law to use the estate tax value as your basis (IRC §1014 regulations). Using a higher basis than the estate tax value can result in an IRS accuracy-related penalty. Contact the estate executor or CPA if unsure. |
Step 2 — Add Capital Improvements You Made (After Inheriting)
| Adjusted Basis = FMV at Date of Death + Capital Improvements (by heir) |
If you made qualifying capital improvements after inheriting — a new roof, kitchen remodel, HVAC replacement, room addition — those costs add directly to your basis and reduce your taxable gain. Routine repairs and maintenance do not qualify.
Step 3 — Calculate Net Sale Proceeds
| Net Proceeds = Sale Price − Selling Expenses |
Selling expenses include real estate agent commissions, closing costs, attorney fees for the sale, transfer taxes, recording fees, and title insurance. These reduce your proceeds and therefore your taxable gain.
Step 4 — Calculate Your Capital Gain or Loss
| Capital Gain (or Loss) = Net Sale Proceeds − Adjusted Basis = (Sale Price − Selling Expenses) − (FMV at Death + Improvements) If result is POSITIVE → Taxable gain; tax may be owed If result is ZERO → No gain; no tax owed If result is NEGATIVE → Capital loss; may be deductible |
Step 5 — Apply the Long-Term Tax Rate
Since inherited property is always long-term (IRC §1223(11)), your federal rate is 0%, 15%, or 20% based on your total taxable income. The table below shows the 2025 thresholds:
2025 Long-Term Capital Gains Rates — Capital Gains Tax Rate Reference
| Filing Status | 0% Rate Up To | 15% Rate Up To | 20% Rate Above |
| Single | Up to $48,350 | Up to $533,400 | Above $533,400 |
| Married Filing Jointly | Up to $96,700 | Up to $600,050 | Above $600,050 |
| Head of Household | Up to $64,750 | Up to $566,700 | Above $566,700 |
| Married Filing Separately | Up to $48,350 | Up to $300,000 | Above $300,000 |
Source: IRS Revenue Procedure 2024-40
2024 Long-Term Capital Gains Rates
| Filing Status | 0% Rate Up To | 15% Rate Up To | 20% Rate Above |
| Single | Up to $47,025 | Up to $518,900 | Above $518,900 |
| Married Filing Jointly | Up to $94,050 | Up to $583,750 | Above $583,750 |
| Head of Household | Up to $63,000 | Up to $551,350 | Above $551,350 |
| Married Filing Separately | Up to $47,025 | Up to $291,850 | Above $291,850 |
Source: IRS Revenue Procedure 2023-34
Complete Formula Summary
| Adjusted Basis = FMV at Date of Death + Capital Improvements Net Proceeds = Sale Price − Selling Expenses Capital Gain = Net Proceeds − Adjusted Basis Federal Tax = Capital Gain × Rate (0%, 15%, or 20%) NIIT (if applies) = min(Capital Gain, MAGI − Threshold) × 3.8% Total Tax = Federal Tax + NIIT + State Tax After-Tax Proceeds = Net Proceeds − Total Tax |
Real-World Worked Examples
Example 1: Inherited Home — Sold Quickly (Zero Tax)
You inherit your parent’s home. FMV at date of death: $480,000. No improvements made. Sold 6 months later for $495,000 with $15,000 in agent commissions.
| FMV at Date of Death (Stepped-Up Basis) | $480,000 |
| + Capital Improvements | $0 |
| = Adjusted Basis | $480,000 |
| Sale Price | $495,000 |
| − Selling Expenses | −$15,000 |
| = Net Sale Proceeds | $480,000 |
| Capital Gain | $0 |
| Federal Tax Owed | $0 |
Result: The stepped-up basis completely eliminates the taxable gain. The home appreciated $400,000+ from original purchase — none of that is taxable to you as the heir.
Example 2: Inherited Home — Sold After Improvements
You inherit a home worth $400,000 at date of death. You invest $75,000 in renovations over two years, then sell for $550,000 with $22,000 in selling costs. Your income is $90,000 (Single filer, 2025).
| FMV at Date of Death | $400,000 |
| + Capital Improvements | $75,000 |
| = Adjusted Basis | $475,000 |
| Sale Price | $550,000 |
| − Selling Expenses | −$22,000 |
| = Net Sale Proceeds | $528,000 |
| Capital Gain | $53,000 |
| Long-Term Rate (15%) | × 15% |
| Federal Tax Owed | $7,950 |
| After-Tax Proceeds | $520,050 |
Without tracking the $75,000 renovation, the taxable gain would be $128,000 — 2.4× higher. Proper basis tracking saved approximately $10,950 in federal tax.
Example 3: Inherited Stocks — Sold at a Gain
You inherit 1,000 shares of stock. Original owner paid $12/share in 2005. FMV on date of death: $85/share ($85,000). You sell 18 months later at $100/share.
| FMV at Date of Death (Stepped-Up Basis) | $85,000 |
| Sale Proceeds (1,000 × $100) | $100,000 |
| Capital Gain | $15,000 |
| Long-Term Rate (15%) | × 15% |
| Federal Tax Owed | $2,250 |
Without the step-up, the gain would be $88,000. Tax savings from stepped-up basis: $10,950.
Example 4: Capital Loss on Inherited Property
You inherit a rental property with FMV of $310,000 at date of death. The market declines and you sell 14 months later for $285,000, paying $17,100 in commissions.
| Stepped-Up Basis (FMV at Death) | $310,000 |
| Net Sale Proceeds ($285,000 − $17,100) | $267,900 |
| Capital Loss | −$42,100 |
| Federal Tax Owed | $0 |
| Annual Deduction vs. Ordinary Income | Up to $3,000 |
| Loss Carryforward | $39,100 |
A capital loss on inherited property can still deliver tax savings — offsetting other capital gains dollar-for-dollar, and reducing ordinary income by up to $3,000/year.
Special Situations & Important Rules
Jointly Owned Property
If you inherit property that was jointly owned with the deceased, only the portion owned by the decedent receives the step-up in basis. The surviving co-owner’s share retains its original basis.
Community Property States — The Double Step-Up
Residents of nine community property states may receive a step-up basis on the entire property when one spouse dies — not just the deceased spouse’s half. This dramatically reduces future capital gains for the surviving spouse.
Community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin (and Alaska by election).
Moving Into the Inherited Home — §121 Exclusion
If you move into the inherited home and use it as your primary residence for at least 2 of the next 5 years, you can qualify for the §121 Primary Residence Exclusion — up to $250,000 tax-free (single) or $500,000 (married filing jointly) — on top of the already stepped-up basis. In many cases this eliminates all capital gains tax.
Inherited Retirement Accounts — No Step-Up
Traditional IRAs, 401(k)s, 403(b)s, and most other retirement accounts do NOT receive a stepped-up basis. Distributions are taxed as ordinary income (10%–37%). Consult a financial advisor about Required Minimum Distribution (RMD) rules for inherited retirement accounts under SECURE Act 2.0.
The Consistent Basis Requirement (Form 8971)
If the estate was required to file Form 706 for federal estate tax purposes, the heir may be required to use the estate tax value as their basis — even if the property is worth more now. Using a higher basis can result in an IRS accuracy-related penalty. If you received Schedule A to Form 8971 from the estate, that value governs.
Gifts vs. Inheritance — A Critical Distinction
| Important: Gifts Do NOT Get a Stepped-Up Basis If the original owner gave you the property while they were still alive (a gift), you inherit their original cost basis — not the stepped-up FMV. This can result in a much larger taxable gain when you sell. Only property transferred at death receives the step-up. This is why estate planning professionals often advise clients NOT to gift highly appreciated assets during their lifetime. |
How to Use the Calculator
Field-by-Field Guide
Time required: Under 60 seconds | What you need: FMV appraisal from the estate + your sale details
Field 1 — Fair Market Value (FMV) at Date of Death
Enter the property’s appraised fair market value on the exact date the original owner passed away. For real estate, this should come from a qualified appraisal. For publicly traded stocks, use the average of the high and low trading price on the date of death. Do NOT enter what the original owner originally paid — that number is irrelevant once the step-up applies.
Field 2 — Capital Improvements
Enter the total cost of qualifying capital improvements YOU made after inheriting the property. These must be permanent improvements that add value or extend the useful life — kitchen remodels, room additions, new roofing, HVAC systems, foundation work. Each dollar here reduces your taxable gain by one dollar. Routine repairs, painting, and maintenance do not qualify.
Field 3 — Sale Price
Enter the gross sale price from the transaction — the number on the purchase contract or settlement statement before any deductions.
Field 4 — Selling Expenses
Enter all costs of completing the sale: real estate agent commissions, broker fees, closing costs, attorney fees related to the sale, transfer taxes, recording fees, and any other transaction costs. These reduce your net proceeds and lower your taxable gain.
What the Calculator Shows After You Click Calculate
- Adjusted Basis (FMV + Capital Improvements)
- Net Sale Proceeds (Sale Price − Selling Expenses)
- Capital Gain or Loss (Net Proceeds − Adjusted Basis)
- Estimated federal tax based on long-term rates
- After-tax proceeds — what you actually keep
- Whether a capital loss is applicable and the deduction amount
7 Strategies to Reduce Capital Gains Tax on Inherited Property
- Sell Quickly After Inheriting. The stepped-up basis resets to FMV at death. If the property hasn’t appreciated much since then, selling quickly results in little or no taxable gain.
- Track Every Qualifying Improvement. Every capital improvement increases your basis and reduces your taxable gain dollar-for-dollar. Keep all receipts, contractor invoices, and permits — this is the most commonly overlooked tax reducer.
- Move In and Qualify for the §121 Exclusion. Live in the inherited home as your primary residence for 2 of the next 5 years and exclude up to $250,000 ($500,000 married) from federal tax — on top of the stepped-up basis.
- Deduct All Selling Expenses. Agent commissions, closing costs, transfer taxes, and attorney fees all reduce your net proceeds. A $500,000 sale with $30,000 in selling costs is treated as a $470,000 sale.
- Use Capital Loss Carryforwards. Capital losses from other investments offset your inherited property gain dollar-for-dollar. Check if you have unused loss carryforwards from prior years on your Schedule D.
- Consider an Installment Sale (IRC §453). Spreading gain across multiple years via an installment sale keeps you in lower brackets each year and reduces total tax paid. Consult a tax professional before structuring.
- Donate to Charity. Donating appreciated inherited property to a qualified charity eliminates capital gains tax and may generate a charitable deduction equal to the full FMV. Best for property that has appreciated significantly after inheritance.
How to Report on Your Tax Return
Forms Required for Selling Inherited Property
| IRS Form | Purpose |
| Form 8949 | Sales and Other Dispositions of Capital Assets — report the sale on Part II (Long-Term), Column (f) code ‘I’ for inherited property |
| Schedule D | Capital Gains and Losses — totals from Form 8949 flow here |
| Form 1040 | Your final capital gain or loss flows from Schedule D to your Form 1040 and affects your total tax |
| Form 8971 | Consistent Basis Statement (if received from estate executor — you must use this value as your basis) |
| Filing Note — Code ‘I’ on Form 8949 On Form 8949, use adjustment Code ‘I’ in column (f) when reporting inherited property. This signals to the IRS that IRC §1223(11) applies — the automatic long-term holding period for inherited assets. Check Box D or Box F depending on whether a Form 1099-B was issued. |