The short version
Many families worry that selling a parent's house will trigger a huge tax bill. For most, the picture is gentler than expected. California doesn't tax inheritances, and a federal rule called stepped-up basis usually wipes out most of the gain that built up during the parent's lifetime. This page explains the main ideas in plain English so you can have a better conversation with your tax professional. It isn't tax advice.
No California inheritance or estate tax
California has no state inheritance tax (a tax on the person receiving an inheritance) and no state estate tax (a tax on the estate itself). Inheriting the house doesn't create a California tax bill on its own. Property taxes are a separate matter — see Prop 19.
Stepped-up basis, explained
When you sell property, taxable gain is generally the sale price minus your basis (your tax cost) and selling costs. If you bought a house yourself, your basis would be roughly what you paid. Inherited property is different.
For federal income tax, an heir's basis is generally the home's fair market value on the date of death — not what the parent paid decades ago. That's called a stepped-up basis. If you sell for about the date-of-death value, there may be little or no capital gain to report.
That's why a date-of-death appraisal matters. It's important evidence of the value your basis is built on. In probate, a court-appointed probate referee values the real estate; in a trust, the trustee usually orders an appraisal. Keep a copy with your tax records.
Community property and the surviving spouse
California is a community property state, meaning property acquired during a marriage is generally owned equally by both spouses. When a spouse dies, both halves of community property may receive a stepped-up basis — not just the half that belonged to the spouse who died. That can matter a great deal if the surviving spouse later sells. How title was held affects this, so ask a tax professional.
Long-term treatment
Gain on inherited property is generally treated as long-term, regardless of how long you held it. Even if you sell soon after the death, you aren't usually pushed into short-term treatment.
The home-sale exclusion usually doesn't apply
People often ask about the exclusion that lets homeowners sell their own primary residence without tax on part of the gain. That exclusion usually doesn't apply to an inherited house unless the heir owned it and lived in it long enough themselves. If you moved into the house after inheriting it, ask a tax professional how the rules apply.
Federal estate tax
Federal estate tax only affects very large estates: the exemption is $15 million per person in 2026 under the 2025 federal tax law, and married couples can often combine theirs. Ask a tax professional.
Selling costs and records
Costs of selling — such as the real estate commission, escrow and title fees, and repairs made to get the house ready for sale — generally reduce taxable gain. Keep every invoice and closing statement. A simple folder or spreadsheet started in the first weeks saves real stress at tax time.
Questions to bring to your tax professional
- What's my basis, and do I have the right appraisal to support it?
- Does community property basis apply to this house?
- Which selling and preparation costs reduce the gain?
- Who reports the sale — the estate, the trust, or each heir?
- If I lived in the house, does any home-sale exclusion apply?
Talk with a CPA or enrolled agent before you sell.