Inherited Asset Basis
What Your Property Is Worth for Tax Purposes
When you inherit property, your tax basis is generally the value at the date of death, not what the original owner paid for it. If the estate filed an estate tax return, that value is locked in. Either way, documenting it correctly matters when you sell.
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The stepped-up basis rule
When you inherit property, a house, stocks, land, a business, your basis (the value used to calculate gain or loss when you sell) is generally “stepped up” to the fair market value at the date of death. This is one of the most valuable tax benefits in the code.
If your parent bought a house for $50,000 in 1985 and it was worth $400,000 when they passed away, your basis is $400,000, not $50,000. If you sell it for $410,000, your gain is only $10,000.
But here’s what many people don’t realize: you need to be able to prove that value. The IRS won’t just take your word for it.
If the estate filed an estate tax return (Form 706)
For larger estates, those required to file a federal estate tax return, the executor files Form 8971, which reports the value of each asset to the IRS and sends each beneficiary a Schedule A listing the assets they inherited and their values.
If you received a Schedule A, that number is your basis. You cannot use a different number. Not an appraisal you got later, not a Zillow estimate, not a number your real estate agent gave you.
This is called the “basis consistency rule.” If you report a basis higher than what was on the Schedule A, the IRS will reduce your basis to the reported value. And if you never received a Schedule A at all (because the executor didn’t file one), your basis can be treated as zero until the proper reporting is made, a much harsher result.
Keep your Schedule A. You may not sell the property for years or decades, but when you do, you’ll need it.
If the estate didn’t file a 706
Most estates aren’t large enough to require an estate tax return. In that case, there’s no Form 8971 and no Schedule A. Your basis is still the date-of-death fair market value, but it’s on you (and your tax preparer) to document it.
For real estate, this usually means getting an appraisal as of the date of death, or gathering comparable sales from that time period. For publicly traded securities, it’s the mean of the highest and lowest selling prices on the date of death. For other assets, it depends on what the property is.
The problem is that many people don’t get this documentation at the time of death; they’re dealing with grief, logistics, and a hundred other things. Then years later, when they sell the property, they’re scrambling to reconstruct a value that should have been documented at the time.
We help with this, whether it’s at the time of the inheritance or years later when you’re ready to sell.
What to do now
- If you received a Schedule A from an estate, keep it with your important tax documents permanently
- If you inherited property and don’t have a Schedule A, document the date-of-death value now. Don’t wait until you sell
- If you’re selling inherited property and aren’t sure of your basis, we can help you determine and document it before you file
- If you inherited property years ago and never documented the basis, we can help reconstruct it
Frequently Asked Questions
What is my basis on inherited property?
Your basis is generally the fair market value of the property on the date of death. This is called the “stepped-up basis.” If the original owner bought a stock for $10 and it was worth $100 when they died, your basis is $100. If you sell it for $105, your gain is $5, not $95. For larger estates that filed a federal estate tax return (Form 706), the estate reports the value on Form 8971 and you receive a Schedule A; that value is your basis, and you cannot use a different number.
I received a Schedule A - what do I do with it?
Keep it permanently. The Schedule A tells you the estate tax value of each asset you inherited, and that value is your basis when you sell. Whether you sell next month or 30 years from now, that’s the number you use. If you claim a higher basis on your tax return, the IRS will reduce it to the reported value. And if the executor never furnished a Schedule A, the basis can be treated as zero until proper reporting is made. If you’ve misplaced your Schedule A, ask the estate’s executor or attorney for a copy.
I inherited a house but never got a Schedule A - how do I determine my basis?
If the estate wasn’t large enough to file a federal estate tax return, there’s no Schedule A. Your basis is still the date-of-death fair market value, but you need to document it yourself. For real estate, this typically means a retrospective appraisal as of the date of death, or comparable sales from that time period. For publicly traded investments, it’s the mean of the high and low trading prices on the date of death. We can help you determine and document the value, whether the death was recent or years ago.
What if I already sold inherited property without knowing my correct basis?
If you underreported your basis (claimed too little), you may have overpaid tax; you can file an amended return to correct it. If you overreported your basis (claimed too much), you should correct it before the IRS does. If you received a Schedule A and reported a higher number, the IRS will reduce your basis to the reported value, and if no Schedule A was furnished at all, the zero-basis rule applies. Either way, we can review the original return and determine whether a correction is needed.
Related services
Inherited Assets & Stepped-Up Basis
Comprehensive basis tracking for inherited property: real estate, securities, and everything else.
Individual Tax Return (1040)
Your individual return, with inherited asset sales reported correctly.
Beneficiary K-1
If you received a K-1 from an estate or trust, we coordinate it with your inherited basis.