Estate guide
Step-Up in Basis After a Parent Passes.
When you inherit a home, its tax basis generally resets to its fair market value on the date of death. Documenting that value properly can make a big difference when the home is sold.
The Basics
Normally, capital gains are measured from what the owner originally paid. For inherited property, federal tax rules generally "step up" the basis to the value on the date of death. A home bought decades ago for a fraction of today's price may carry little or no taxable gain for the heirs if it's sold soon after.
A Simple Example
A parent bought a Dana Point home in 1985 for $250,000. It was worth $1,800,000 on the date of death. The heirs sell a year later for $1,850,000. With the stepped-up basis, the gain is measured from $1,800,000 — not $250,000.
Why the Appraisal Matters
The stepped-up value has to be supported. A signed retrospective appraisal, with comparable sales from around the date of death, is the standard way to document it for your CPA and in case of an IRS question.
Community Property in California
For married couples holding community property, both halves may receive a step-up when the first spouse passes. Ask your CPA whether this applies — it's one more reason to get the value documented.
Don't Wait Too Long
Appraisals can be done years later, but it's easier when the home hasn't yet been remodeled or sold and records are fresh.
This guide is general information, not tax or legal advice. Talk with your attorney or CPA about your situation.
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