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Most people inherit a house once, usually together with siblings. The value question splits in two: what the house was worth on the date of death, which sets every heir's tax basis, and what it is worth today, which drives the keep, sell or rent decision. This guide covers both, with the 2026 figures and a worked example. How value itself is built from comparable sales is in the guide to how much a house is worth; the point here is the date and the tax that hangs on it.
How to determine fair market value of inherited property: the first 30 days
Nothing about the tax result is decided in the first month. Nearly all of the evidence for it is.
Find the deed and read how title was held. Sole name, living trust, joint tenancy or community property: each leads to a different process and a different person with signing authority.
Keep the insurance alive and tell the carrier. Many policies restrict coverage once a house stands vacant; call the insurer, keep the utilities on and secure the property.
Photograph everything, then change nothing. Dated photos and a video walk-through of every room, the roof, the mechanicals and the yard fix the condition on the date of death. Do not repaint, clear out or start a kitchen before the appraiser has seen the house.
Order the date-of-death appraisal and collect the paper. The personal representative (executor or administrator) is the person the IRS holds responsible for the estate's tax filings4, and those filings rest on what the property was worth. Sales that closed around the death date are freshest now. Add purchase documents, improvement invoices, permits and the tax bill. What a retrospective appraisal involves is in the date-of-death appraisal guide; the home appraisal cost and process guide covers the fee, the inspection and how long an appraisal takes.
Do not set a family price yet. A sibling who wants to buy, a nephew who wants to rent: hold both until the value is on paper.
Why the value on the day of death matters: the step-up under § 1014
Section 1014 of the Internal Revenue Code resets the basis of inherited property. Instead of what the deceased owner paid, the heir's basis is what the property was worth on the date of death or, if the executor so elects on the estate tax return, its value six months later on the alternate valuation date1. The result is the step-up in basis (a step-down when prices fell), and it happens whether or not the estate owes a cent of estate tax.
Fair market value is a legal term. In the estate tax regulations it is what the property would fetch from a willing buyer dealing with a willing seller, nobody compelled to trade and both sides reasonably informed about the property2. The county's assessed value, a portal estimate, a quick-sale offer and the price a sibling would like to pay do not meet that standard. In practice it is met by an appraisal from a state-licensed or state-certified appraiser, dated to the day of death.
Three details in the rules trip up heirs:
- The alternate valuation date values the whole estate as of six months after death. The executor elects it on Form 706, cannot apply it to only some assets, and may use it only when it lowers both the gross estate and the estate tax due5. The ordinary family home never uses it.
- Property that went the other way within a year. If you gave the deceased an appreciated asset less than a year before death and it comes back to you, your basis is the deceased owner's adjusted basis, not the stepped-up value6.
- Community property. Both halves, not only the deceased spouse's, take the date-of-death value6; other joint property steps up only on the share included in the estate1.
Where an estate tax return is filed, the heirs' basis must match the value on it, and the executor gives each beneficiary a statement4. Where none is filed, nobody checks the number until an heir sells, perhaps decades later.
This is general information, not legal or tax advice.
Probate, living trust or joint title: which route the house takes
| How title was held | What happens next | Who may sign a listing or deed | Basis for the heirs |
|---|---|---|---|
| Deceased owner alone, with or without a will | Probate: the court appoints a personal representative who pays debts and distributes | The personal representative, once the court issues letters | Fair market value at death1 |
| Revocable living trust | No court; the successor trustee follows the trust instrument | The successor trustee, with a certification of trust | Fair market value at death1 |
| Joint tenancy with right of survivorship | Title passes to the survivor automatically, outside probate | The surviving owner, after recording an affidavit of death | Step-up only on the fraction included in the deceased owner's estate1 |
| Community property (spouses) | Confirmed in or passes to the surviving spouse under state law | The surviving spouse | Both halves at the date-of-death value6 |
Probate takes months in a simple case, longer if the will is contested. In most states the personal representative can sell during administration, sometimes with court confirmation, and the proceeds stay in the estate until distribution; the buyer's title company will want the letters that appoint you.
Three taxes heirs mix up: estate tax, state taxes and capital gains
Federal estate tax. The estate pays it, not the heirs, and only once the gross estate (plus adjusted taxable gifts) passes the exclusion for the year of death: $15,000,000 for a death in 2026, up from $13,990,000 in 2025 and $13,610,000 in 20243. Above that line Form 706 is due nine months after the date of death, with an automatic six-month extension on Form 47685. Everything in the gross estate is valued at fair market value, not at cost3. Almost every family estate files nothing, and still needs the date-of-death value for the heirs' basis.
State estate and inheritance taxes. A minority of states levy their own, some with thresholds far below the federal figure, and inheritance taxes fall on the heir rather than the estate; which applies depends on where the deceased lived and where the property sits.
Income tax for the heirs. The inheritance itself is not income4. Rent the house earns after the death is. Selling it can produce a capital gain, reported on Schedule D and Form 89497: the amount realized, meaning the sale price less selling expenses8, minus the stepped-up basis. Two rules favor heirs: inherited property counts as held long-term however quickly you sell8, and a sale soon after death at about the appraised value produces almost no gain, because price and basis match. One rule does not: the home-sale exclusion of $250,000 ($500,000 on a joint return) requires that you owned the home and lived in it as your main residence for a total of two years or more out of the five before the sale9, a test heirs who never lived there cannot meet.
This is general information, not legal or tax advice.
Keep, sell or rent: how siblings decide without a fight
Three questions settle most estates faster than three opinions.
Does one of you want to live there? That heir buys the others out at the appraised value, usually with a mortgage, and the deed is retitled; the guide to the family home in a divorce walks through the same buy-out math. In California, since Proposition 19 took effect on February 16, 2021, the parent-child exclusion from reassessment covers only a family home that was the parent's principal residence and becomes the child's, with the homeowners' exemption claimed within one year. The excluded amount is the parent's taxable value plus $1,044,586 for transfers between February 16, 2025 and February 15, 2027; market value above that is added to the new taxable value10. A parent's rental or second home does not qualify and is reassessed on the transfer10. How a reassessment turns into the annual bill is explained in the guide to assessed versus market value.
Can the estate carry the house while you decide? Mortgage, taxes, insurance and upkeep run from the day of death; a year of arguing costs each heir a share of that year.
What does each option leave per heir? Selling shortly after death at fair market value leaves the proceeds less costs with almost no income tax, because the basis was set that day1. Renting keeps the asset, but each heir now owns a rental: the basis for depreciation is the lesser of the stepped-up basis and the house's value on the day it is converted to rental use6, the home-sale exclusion is out of reach9, and in California the reassessed tax bill lands every year. The rent it out or sell guide puts rent and yield against net proceeds in dollars instead of sentiment.
This is general information, not legal or tax advice.
A hypothetical estate: bought for $180,000, worth $640,000 at death
The figures are chosen for the arithmetic, not for any real address: purchased in 1995, appraised at death in 2026, sold in 2027 for $655,000. The owner died in January 2026 holding the house in her sole name; three adult children inherit equally; the appraisal ordered in the first month puts the date-of-death value at $640,000.
| Line | Amount | Why |
|---|---|---|
| Purchase price, 1995 | $180,000 | The deceased owner's basis, which the step-up erases |
| Appraised fair market value at death, January 2026 | $640,000 | The heirs' new basis under § 10141 |
| Sale price, March 2027 | $655,000 | Arm's-length sale on the open market |
| Selling expenses at 5 percent (agent compensation, escrow, title and closing charges) | $32,750 | Come off the sale price to reach the amount realized8 |
| Amount realized | $622,250 | Price minus selling expenses |
| Result against the stepped-up basis | $17,750 loss | Long-term whatever the holding period8; each child reports one third on Schedule D and Form 89497 |
| Gain if the 1995 price had remained the basis | $442,250 | What § 1014 removes from the family's taxable income |
| Federal estate tax | $0 | Far below the $15,000,000 exclusion for 2026 deaths3; no Form 706 required5 |
Whether the small loss is deductible depends on whether any heir used the house personally after the death; ask the CPA before someone moves in. Two variations show what the first month is worth. Without the appraisal, the heirs would need a retrospective one at the 2027 sale, cross-checked against the FHFA House Price Index, whose datasets reach back to 1975 and include developmental indexes for five-digit ZIP codes11, and the condition of the house in January 2026 would rest on memory. Had one child kept a California house as a rental, the county would reassess it under Proposition 1910, and the property tax bill would become the family's argument.
This is general information, not legal or tax advice.
What CheckValue can show heirs today, and what it cannot replace
The date-of-death appraisal answers yesterday's question. The argument between siblings is usually about today: what the house would fetch now, what it would rent for, and whether a buy-out offer is fair. A CheckValue report gives everyone the same starting point, an AI valuation of the address with its official sources listed. Three parts of the report do most of the work for an heir:
- The official price index for the area. It shows how far the local market has moved since the date of death, a check on any retrospective figure and on whether waiting is likely to add value or cost.
- The rent estimate and gross yield next to the ownership costs. The keep-or-rent question in numbers: what a tenant would pay, what the house costs to hold, and the yield on the appraised value.
- Selling costs and net proceeds. The sale side of the same question, so that a sibling's buy-out offer can be compared with an open-market sale on equal terms.
The report and its PDF come in five languages and can be shared by link, which helps when one heir lives in Denver and another in Madrid. What it does not do: it values the house as of today, not the date of death, no appraiser inspects it, and it neither establishes the § 1014 basis1 nor satisfies Form 7065. Use it to agree on a range before you pay for the appraisal and to put the keep, sell and rent options on one page. Start with the free preview for the inherited address; if the estate holds several properties, report packs are on the pricing page.
Who does what: attorney, CPA, appraiser, agent
The estate attorney opens probate or advises the trustee, obtains the letters and tells you what you may sell or lease. The appraiser delivers the date-of-death value and, later, a current appraisal if a buy-out needs financing. The CPA files the final and estate returns, decides whether Form 706 is due5, prepares the basis statements where it is4 and reports each heir's share of any sale7. The agent prices from current comparables; hand over the appraisal so that list price and basis are not two unrelated numbers.
Mistakes that cost heirs money
- No date-of-death appraisal. The most expensive omission on this list: a few hundred dollars in month one, a reconstruction from memory in year five.
- Renovating before valuing. A kitchen installed before the appraiser's visit turns the condition on the date of death into a matter of opinion.
- Selling to a sibling below market. The gap between the family price and fair market value is a gift for tax purposes and a grievance for family purposes; agree on the appraised value and write down any discount.
- Missing the deadlines that do exist. Form 706, where required, is due nine months after death unless extended5; in California the homeowners' exemption that preserves the parent-child exclusion must be claimed within a year of the transfer10.
- Not deciding. Carrying costs accrue while siblings wait for a better market; set a date for the keep, sell or rent decision.
This is general information, not legal or tax advice.
The inheritances I watched go smoothly in Austria and in Tenerife had one thing in common: someone in the family put the value and a set of photographs on paper in the first weeks, before anyone had formed an opinion. Where nobody did, every later conversation started from what a neighbor supposedly got years ago, and that number always favored whoever was speaking.
Frequently asked questions
How do you determine the fair market value of inherited property?
You establish what the house would have sold for on the date of death between an informed buyer and an informed seller, neither of them under pressure to deal. In practice that means a written appraisal dated to the day of death and built from sales that closed around then. The county's assessed value, an online estimate or a price agreed within the family do not qualify, and the IRS may ask for the evidence whenever an heir sells.
What is step-up in basis and how does it work for a house?
Step-up in basis means an heir's cost basis in an inherited house is reset to its fair market value on the date of death under 26 U.S.C. § 1014, no matter what the previous owner paid. A house bought for $180,000 and worth $640,000 at death gives the heirs a $640,000 basis, so the appreciation during the owner's life is never taxed to them. If values fell, the basis steps down instead.
Do you pay capital gains on inherited property if you sell it?
Only on the part of the price above your stepped-up basis, after deducting selling expenses. An heir who sells within a year or so of the death at about the appraised value usually shows little or no gain, and sometimes a small loss. Any gain is taxed at long-term rates regardless of how long you held the house, and each heir reports their share on Schedule D and Form 8949.
Do I need an appraisal for inherited property?
No statute forces every estate to order one, but the appraisal is the document that proves your basis to the IRS when you sell, and estates that must file Form 706 have to value their real property anyway. Skip it and an heir who sells years later will have to pay for a retrospective appraisal and reconstruct the condition of the house from memory. It is the cheapest tax paperwork an estate will ever buy.
How long do you have to sell an inherited house before capital gains apply?
There is no federal deadline, and waiting neither triggers nor avoids the tax. Gain is measured from the date-of-death basis whenever you sell, so the only thing time changes is the amount, by however much the local market moves in between. The clocks that do run are the probate timetable, the nine-month Form 706 deadline where a return is due, and the carrying costs the estate pays every month the house is unsold.
Is inheritance taxable?
Not as income: receiving a house or cash from an estate is not taxable income to the heir under federal law. The estate itself owes federal estate tax only above the basic exclusion, which is $15,000,000 for someone who dies in 2026, and a minority of states add their own estate or inheritance taxes at lower thresholds. What can be taxed later is rent the house earns and any gain above the stepped-up basis when it is sold.
Can I sell an inherited house before probate?
Not before someone has legal authority to sign. In a probate estate that is the personal representative once the court has issued letters; with a living trust it is the successor trustee, and no court is involved. Most states let the personal representative sell during administration, sometimes with court confirmation, with the proceeds held in the estate until distribution. Buyers' title companies will want to see the appointment papers before closing.
Should I sell or rent my inherited house?
Put both options in dollars: the net proceeds of a sale at today's value against the rent the house would earn minus taxes, insurance, upkeep and management, then add the tax differences. Heirs who never lived in the home get no home-sale exclusion, and in California an inherited rental is reassessed to market value under Proposition 19. If one sibling wants to live there, a buy-out at the appraised value is usually the cleanest outcome.
This article is general information, not legal, tax or investment advice. Figures and rules carry the year they were published; check the cited source for the current version.
Josef Eckmair MBA is co-founder of CheckValue and managing director of CBDNOL GmbH (Ansfelden, Austria). He has more than 20 years of real estate experience in Tenerife and Austria and writes about appraisals, taxes, selling costs and valuations for professionals.
Articles by Josef Eckmair →Sources
- 1law26 U.S.C. § 1014: Basis of property acquired from a decedentLegal Information Institute, Cornell Law School · 2026An heir's basis in inherited property is its fair market value at the date of death, or its value on the alternate valuation date if the executor elects it; the new basis covers property included in the decedent's gross estate; appreciated property given to the decedent within one year of death and passing back to the donor keeps the decedent's basis.law.cornell.edu ↗
- 2law26 CFR § 20.2031-1: Definition of gross estate; valuation of propertyLegal Information Institute, Cornell Law School · 2026The regulatory definition of fair market value for estate purposes (willing buyer, willing seller, no compulsion on either side, both reasonably informed of the relevant facts).law.cornell.edu ↗
- 3officialEstate tax: filing thresholds by year of deathInternal Revenue Service · 2026Filing thresholds of $13,610,000 (2024), $13,990,000 (2025) and $15,000,000 (2026); a return is required only when the gross estate plus adjusted taxable gifts exceeds the threshold; assets are valued at fair market value, not at cost.irs.gov ↗
- 4officialPublication 559 (2025), Survivors, Executors, and AdministratorsInternal Revenue Service · 2026The personal representative's duty to file the decedent's and the estate's returns when due; property received as a bequest or inheritance is not included in the recipient's income, but income it later produces is; consistent basis reporting between the estate and the beneficiaries where an estate tax return is required.irs.gov ↗
- 5officialInstructions for Form 706 (07/2026)Internal Revenue Service · 2026Who must file for 2026 deaths, the nine-month due date and the six-month extension on Form 4768, and the alternate valuation election (six months after death, the whole estate, only if both the gross estate and the tax decrease).irs.gov ↗
- 6officialPublication 551 (12/2025), Basis of AssetsInternal Revenue Service · 2025Basis of inherited property; appreciated property given to the decedent within one year of death keeps the decedent's basis; community property takes the date-of-death value for both halves; the basis for depreciating property changed to rental use is the lesser of its fair market value and its adjusted basis on the date of the change.irs.gov ↗
- 7officialGifts & inheritances: basis of inherited property (FAQ)Internal Revenue Service · 2026The IRS answer on the basis of inherited property (fair market value at death, or the alternate valuation date if elected on Form 706) and on reporting a later sale on Schedule D and Form 8949.irs.gov ↗
- 8officialPublication 544 (2025), Sales and Other Dispositions of AssetsInternal Revenue Service · 2026Inherited property is treated as held longer than one year regardless of the actual holding period, so any gain or loss is long-term; the amount realized on a sale is the money and property received less selling expenses.irs.gov ↗
- 9law26 U.S.C. § 121: Exclusion of gain from sale of principal residenceLegal Information Institute, Cornell Law School · 2026The $250,000 ($500,000 joint) exclusion requires ownership and use as a principal residence for periods aggregating two years or more during the five years before the sale, a test heirs who never lived in the house cannot meet.law.cornell.edu ↗
- 10officialProposition 19: base year value transfers and intergenerational exclusionsCalifornia State Board of Equalization · 2026Operative February 16, 2021: the parent-child exclusion applies only to a family home that is the principal residence of both parent and child (or a family farm), homeowners' exemption within one year, value limit of the factored base year value plus $1,044,586 for transfers from February 16, 2025 to February 15, 2027; rental homes do not qualify.boe.ca.gov ↗
- 11statisticsFHFA House Price Index Datasets (states, metros, ZIP codes, expanded-data)Federal Housing Finance Agency · 2026Repeat-sales indexes reaching back to 1975, including developmental annual indexes for five-digit ZIP codes, usable to check how prices moved between a date of death and a later sale.fhfa.gov ↗
