Step-up in basis: why the sale date and appraisal matter

Inherited houses get a new tax basis at the date of death. Handled correctly, that usually means little or no capital gains tax on the sale.

By Vennessa Mele, DRE #02115354 · Orange County, California · Last reviewed September 2026

Short answer: when someone dies, the tax basis of their house resets to its fair market value on the date of death. If the estate sells for about that value, there is little or no capital gain to tax. This is one of the biggest financial advantages an estate has, and it is easy to waste.

An example

Your mother bought the house in Fullerton in 1978 for $85,000. It is worth $1,050,000 when she passes. Her basis was $85,000; the estate's basis becomes $1,050,000. If the estate sells for $1,060,000 a few months later, the taxable gain is roughly $10,000 minus selling costs, which is usually close to zero. Had she sold the house herself the year before, the gain would have been close to $965,000.

What can go wrong

• No date-of-death value on record. The probate referee's appraisal usually serves this purpose, but if the estate avoided probate, get a written appraisal as of the date of death. Do this early; appraisers can work retroactively, but it gets harder as time passes.
• Holding the house for years. Every dollar of appreciation after the date of death is taxable gain to the estate or heirs. Waiting is not free.
• Community property vs. joint tenancy. For married couples, how title was held affects whether one half or the whole house gets the step-up. Community property with right of survivorship generally gets a full step-up; joint tenancy between spouses may not. Ask a CPA.
• Improvements after death. Money the estate spends fixing the house up adds to basis. Keep receipts.

Property taxes are a separate question

Basis is about income tax. Property tax reassessment is governed by Proposition 19, which since 2021 only lets a child keep a parent's low assessed value if the child moves in as a primary residence within a year, and only up to a cap. If the house is going to be sold, reassessment does not matter much; if an heir wants to keep it, it matters a lot. More in the FAQ.

I am not a CPA and this is not tax advice. I can, however, tell you what similar houses sold for around the date of death, and I work with two Orange County CPAs who handle estates.

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