Taxes on selling inherited property: Guide for US citizens

Inheriting property is a financial win, but it also comes with tax considerations that catch many people off guard. Your tax situation will look different depending on where your property is located.

If you inherit property in the US, you'll face one set of rules, and some of them depend on your state. If you inherit property abroad as a US citizen, you'll deal with both foreign tax laws and US reporting requirements. You may even have to pay taxes in both countries.

This guide breaks down everything you need to know about taxes on selling inherited property, whether it's in the US or abroad.

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Table of contents
What types of taxes are there when selling an inherited property? Steps for selling an inherited property as an American What to consider when inheriting a property

What types of taxes are there when selling an inherited property?

In the US, most people don't owe taxes right when they inherit property. In rare cases, you may have to pay an inheritance tax or an estate tax, but in most situations, you'll only face a tax bill when you sell.

That's when the capital gains tax enters the picture for most people.

If you inherited property in another country, different rules apply. Foreign countries follow their own tax laws, not US law. You might owe inheritance, estate, and capital gains taxes there, depending on local regulations.

Let's take a closer look:

Inheritance tax

Inheritance tax is a state-level tax that you pay when you receive property from someone who has died. But as of 2025, only 5 states collect this tax:¹

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Iowa used to levy an inheritance tax, too, but it was abolished on January 1, 2025.¹

If you live in a state with an inheritance tax, how much you pay depends on a few different factors, such as your relationship to the person who died and the value of what you inherited. Close relatives typically pay less, and spouses may be fully exempt.

This is a state issue, so for the most accurate rates and possible exemptions, it's best to get in touch with your state tax authority.

Estate tax

The estate tax may sound similar to the inheritance tax, but they're quite different from each other. The estate itself pays this tax before distributing anything to heirs, so this is something that'll just happen during the inheritance process.

The federal estate tax has a high threshold. In 2025, that threshold is 13.99 million USD for individuals or 27.98 million USD for married couples.² The government only taxes amounts above this threshold.

In other words, you don't have to pay any tax to the federal government on an inherited property that's worth less than 13.99 million USD (or 27.98 million USD if you're married).²

However, some states also levy their own estate taxes, often with lower thresholds than the federal government uses. For example, Washington has a 35% tax on estates worth 9 million USD or more.¹

Capital gains tax

Capital gains tax is the main tax you should think about when selling inherited property. It applies when you sell the property for more than its value when you inherited it.

For example, on a house worth 300,000 USD that you sell for 350,000 USD, you'd owe capital gains tax on the 50,000 USD gain.

However, inherited property gets a major advantage with something called a stepped-up basis.

When you inherit property, its tax basis "steps up" to the fair market value on the date the original owner died. You don't use what they originally paid for it.

For example, let's say your aunt bought a house in 1990 for 150,000 USD. She died in 2024 when the house was worth 450,000 USD. You inherit it with a basis of 450,000 USD and not 150,000 USD.

If you sell it a year later for 475,000 USD, you only owe capital gains tax on 25,000 USD, which is the difference between your stepped-up basis and the sale price. Without the stepped-up basis, you'd owe tax on 325,000 USD instead. So, it's pretty major tax savings.

Capital gains rates depend on how long you hold the property after inheriting it and your income level.

Short-term capital gains (property held for 1 year or less) are taxed at ordinary income rates. Long-term capital gains (property held for more than 1 year) get preferential rates, typically 0%, 15%, or 20%, depending on your income.³

Selling a foreign property

If you inherit property in another country, the rules are a bit more complex. You'll have to navigate 2 tax systems: the foreign country's and the US system.

The country you inherit in may have inheritance or estate taxes. It'll also likely charge capital gains on real estate sales. All of these rates will be different from US rates, so you may end up paying more.

The tricky part is that you may also owe US capital gains tax on the same sale. US citizens must report worldwide income, including gains from selling foreign property.

This can result in paying capital gains tax twice on the same transaction, once to the foreign country and once to the US, which is called double taxation.

Luckily, you can often claim a Foreign Tax Credit on your US return for taxes you paid to another country. This credit will reduce or even eliminate your US tax bill.

Steps for selling an inherited property as an American

1. Get the property appraised

You need to know the fair market value of the property on the date of death. This value becomes your stepped-up basis for tax purposes.

Hire a professional appraiser to get an accurate valuation, and keep all of the documentation (you'll need it for filing taxes after the sale).

2. Settle the estate

Before you can sell, the property needs to go through probate, which is the legal process where the court validates the will and authorizes the transfer of assets. This can take quite a long time, such as a few months or even a year.

By the end of this process, you'll have a clear title that shows that you're the legal owner.

3. Decide whether to sell, rent, or keep it

Many people decide to sell their inherited property immediately because of the capital gains tax liability. If you sell right away, you likely won't owe much in capital gains tax since the property value probably hasn't changed significantly.

That said, you may also decide to keep it as a rental to generate income or hold onto it for personal use. But remember that any future appreciation will come with capital gains tax liability.

4. Prepare the property for sale

Once you're ready to start the process, walk through the property and assess what needs attention. You might need to handle repairs or make cosmetic updates to increase the sale value.

It's also important to clean out personal belongings.

5. Work with a real estate agent

You're not required to work with a real estate agent, but most people do. They'll help you price the property correctly, list it, and handle negotiations with buyers.

Naturally, real estate agents charge commissions for their work, so that's something that you need to factor into your budget.

6. Review and accept an offer

Once offers come in, review them carefully with your agent. Make sure to look at the price and contingencies, such as closing timelines and buyer financing. Accept an offer that makes the most sense for your situation.

At closing, you'll sign paperwork that transfers ownership to the buyer, and you'll receive the proceeds from the sale.

7. Report the sale on your taxes

File IRS Form 8949 and Schedule D with your tax return for the year you sold the property. You'll need to report your stepped-up basis, the sale price, and calculate any capital gains.

If you owe taxes on the gain, make sure to pay them by the tax filing deadline.

Special considerations for selling inherited property abroad

For inherited properties outside of the US, the process will depend on the country. It'll likely look somewhat similar to what you can expect in the US, but there may be additional requirements as well.

Usually, it pays off to work with real estate professionals, such as a real estate attorney, who understand local property laws and sales procedures.

What to consider when inheriting a property

When you inherit property, there's more to think about than just whether to sell. Here are a few things that should be top of mind:

• Insurance: You'll likely want to get homeowners' insurance right away, even if the house is empty, since you're now liable for anything that happens on the property
• Property appraisal: Hire a professional appraiser to determine the fair market value as of the date of death to establish your tax basis
• Mortgage and liens: Find out if there's an outstanding mortgage or any liens on the property, and address them before or during the sale
• Co-inheritors: If you inherited the property with siblings or other relatives, you'll need to agree on what to do with it
• Property condition: Assess whether the property needs repairs or updates, especially if you want to sell

Overall, inheriting a property is a big financial bonus, but it's not without its logistical challenges, especially if you don't live in the area.

How to avoid capital gains tax when selling an inherited property

Selling US property

The stepped-up basis already gives you a huge advantage, but there are more ways to reduce or avoid the capital gains tax:

• Move into the property: If you live in the inherited home as your primary residence for at least 2 of the 5 years before selling, you can exclude up to 250,000 USD of capital gains (500,000 USD for married couples filing jointly)⁴
• Use capital losses to offset gains: If you sold other investments at a loss during the same tax year, you can use those losses to offset your capital gains from the property sale
• Sell in a low-income year: Capital gains rates depend on your taxable income, so if you can time the sale for a year when your income is lower (maybe you're between jobs or retired), you might pay a lower rate or even qualify for the 0% capital gains rate

Usually, the easiest way to avoid capital gains tax is to sell it as soon as possible after inheriting.

If you sell shortly after the original owner's death, the property value likely hasn't changed much. You'll have little to no capital gains because the sale price will be close to your stepped-up basis.

Selling foreign property

When you sell inherited property outside the US, you'll likely owe capital gains tax to the country where the property is located. Each country has its own rules and exemptions, so you might avoid paying taxes if you qualify for any local exceptions.

In the US, the stepped-up basis still applies to foreign inherited property. So, your liability may be minimal if you sell right away.

If you do owe capital gains tax in both countries, you can also claim the Foreign Tax Credit in the US to avoid double taxation. The credit lowers what you owe to the IRS by the same amount you paid abroad.

For example, let's say you sell an inherited apartment in Spain and owe 15,000 USD in Spanish capital gains tax. You pay that to Spain.

When you file your US taxes, you report the sale and calculate your US capital gains tax. If your US tax on that gain would be 20,000 USD, you can claim a 15,000 USD foreign tax credit. You'd only owe 5,000 USD to the IRS, not the full 20,000 USD.

A lot of the time, a knowledgeable tax professional can guide you through this process and help you lower your tax burden.

Frequently asked questions

Do I have to pay US taxes on a property I inherited in another country?

Technically, yes. As a US citizen, you must report worldwide income to the IRS, including any gains from selling inherited property abroad. However, many Americans avoid paying capital gains tax in both countries by claiming the Foreign Tax Credit.

Do I need to pay inheritance or estate taxes in both countries if I inherit property abroad?

The US doesn't charge a federal inheritance tax, and the federal estate tax only kicks in for estates worth more than 13.99 million USD in 2025.² So, most people won't owe these taxes in the US.

However, you might owe inheritance or estate taxes in the country where your property is located. Many countries impose them, so you'll need to pay whatever you owe according to local law.

Does stepped-up basis apply to foreign inherited property?

Generally, yes. The stepped-up basis rule applies to inherited property regardless of where it's located. When you inherit property in another country, your tax basis for US purposes steps up to the fair market value on the date the original owner died.

Bottom line

Inheriting property is a big financial event, but it comes with tax responsibilities you need to understand. Most of them have to do with the capital gains tax, but you may also be on the hook for inheritance or estate taxes depending on your property's location and the size of your estate.

If you inherited property in another country, the process is a bit more complicated. You'll deal with foreign tax laws in addition to US requirements, and you may need to navigate potential double taxation.

Managing an international inherited property also means transferring money between countries. These come with high costs because banks often charge high fees and add markups to currency exchange rates.

Transfer costs can eat into your inheritance, so it's smart to investigate alternatives. For example, Wise makes international transfers straightforward and affordable.

Wise can help you get a better deal on currency conversion. You can convert over 40 currencies at the standard mid-market exchange rate, and we'll show you the fees upfront so you know exactly how much you're paying.

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Sources

1. Tax Foundation - Estate and Inheritance Taxes by State, 2025
2. IRS - Frequently asked questions on estate taxes
3. IRS - Topic no. 409, Capital gains and losses
4. Taxes for Expats - How to avoid paying capital gains tax on inherited property

Sources checked 12/04/2025