Inherited Property: Why Basis Is Usually the Value at Death
Published November 5, 2026
Basis is the number you use to figure gain or loss when you sell property. For most purchases, basis is what you paid, plus certain costs. Property you receive from someone who died is different. Its basis is generally set by its value at the date of death, not by what the person originally paid. IRS: Publication 551, Basis of Assets
The basic rule
The basis of inherited property is generally one of these amounts:
- The fair market value of the property on the date of the person's death
- The fair market value on the alternate valuation date, if the estate's personal representative chooses that date
- A special-use value for farm or closely held business real estate, if the executor chose that method for estate tax purposes
If the value at death is higher than what the owner paid, the basis goes up. If it is lower, the basis goes down. IRS: Publication 551, Inherited Property
Finding the value
When an estate must file Form 706, the executor usually gives beneficiaries a Schedule A (Form 8971). It reports the estate tax value of the property distributed to each beneficiary. Some beneficiaries must use that value as their starting basis. If you did not receive a Schedule A, you can use the appraised value at the date of death for state inheritance or transmission tax purposes. IRS: Publication 551
Ask for a written appraisal or valuation as of the date of death. A bank statement, a stock price history, or a real estate appraisal can help support the number.
A simple example
Illustration only, with made-up numbers. Lee inherits a rental house. The owner bought it for $120,000 many years ago. On the date of the owner's death, an appraisal shows a value of $300,000. Lee's basis is generally $300,000. If Lee later sells the house for $310,000, the gain is $10,000, before selling costs and any other adjustments.
Adjustments after inheriting
Basis changes over time. Improvements that add to the property's value increase basis. Depreciation claimed on the property, and insurance payments for casualty losses, decrease basis. Keep track of both. IRS: Topic no. 703, Basis of assets
Gifts received before death
A special rule covers some appreciated property. If you or your spouse gave the property to the person who later died within 1 year before that death, the basis may be the decedent's adjusted basis, not the value at death. This rule is narrow, so check the details for your situation. IRS: Publication 551
Community property
In community property states, when one spouse dies, the total value of community property can generally become the basis of the entire property. This includes the part that belonged to the surviving spouse. The rule applies when at least half of the community interest is included in the decedent's gross estate. IRS: Publication 551, Community property
Holding period
Holding period decides whether a gain is short-term or long-term. The IRS notes that the one-year rule has exceptions for property acquired from a decedent. Check the rules for your sale before you assume a holding period. IRS: Topic no. 409, Capital gains and losses
Records to keep
Keep the death certificate, any Schedule A (Form 8971) you received, the date-of-death appraisal, and the original purchase records. Keep records of improvements and of depreciation claimed. Keep the sale records too. You need them to prove basis years later.
Steps to take
- Find the date of death and the value of each inherited asset on that date.
- Ask the estate for any Schedule A (Form 8971) and related valuation reports.
- Write down your basis as of the date of death.
- Track improvements and depreciation over time.
- When you sell, compare the sale price with your adjusted basis.
General information, not advice about your return or your estate.
Sources: Sources: IRS, Publication 551, Basis of Assets (https://www.irs.gov/publications/p551); IRS, Topic no. 703, Basis of assets (https://www.irs.gov/taxtopics/tc703); IRS, Topic no. 409, Capital gains and losses (https://www.irs.gov/taxtopics/tc409) This is general information, not advice about your specific return.
