The good news first: for most families, selling an inherited house triggers far less tax than they fear, and sometimes none at all. The reason is a rule called the stepped-up basis, and understanding it in plain language will save you a lot of unnecessary worry. Here's how it works, along with the handful of other tax topics that come up when Portland-area families sell an inherited house.
The stepped-up basis, in plain language
When you sell any asset, capital gains tax applies to the difference between what you sell it for and your "basis," roughly, what it cost. Here's the part that helps heirs: when you inherit a house, your basis generally becomes the house's fair market value on the date the owner died, not what they originally paid decades ago. The gain that built up during their lifetime is, for income tax purposes, wiped clean.
An example with round numbers. Say your mother bought her Beaverton house in 1985 for $70,000, and it was worth $520,000 when she passed. If she had sold it while living, the gain would have been calculated from $70,000. But you inherit it, and your basis "steps up" to $520,000. If you sell it six months later for $520,000, your taxable gain is roughly zero. If you sell for $540,000, the taxable gain is about $20,000, not $470,000. If you sell for a bit less than the date-of-death value, after holding costs, you may even have a small deductible loss (that part gets technical fast; ask the CPA).
Details worth knowing
- Document the date-of-death value. An appraisal near the date of death is the clean way to establish your stepped-up basis. Estates often get one anyway; keep it.
- Inherited property gets long-term treatment. If you do have a gain, it's taxed at long-term capital gains rates regardless of how quickly you sell after inheriting.
- If you hold the house for years, rent it out, or move in, the picture changes: new appreciation is taxable gain, rentals bring depreciation rules, and living there may qualify you for the home-sale exclusion later. Each of those is a CPA conversation.
- Oregon taxes capital gains as ordinary income on your state return, so a gain that's small federally is usually small for Oregon too, but it exists.
Estate tax is a different tax, and Oregon has one
People mix up two different taxes. Capital gains tax (above) is about selling the house. Estate tax is about the total value of everything the person owned when they died, and it's paid by the estate, not by you personally. The federal estate tax only touches estates in the many millions. Oregon, though, has its own estate tax with a $1 million threshold, one of the lowest in the country, and a Portland-area house alone can put an estate near it. If the total estate (house, accounts, everything) may exceed $1 million, the estate's attorney or CPA needs to look at it. That's a filing the personal representative handles as part of settling the estate; it isn't triggered by the house sale itself.
Smaller items that surface at closing
- Oregon has no sales tax on real estate and no state transfer tax on ordinary sales (Washington County is the local exception with a small transfer tax; the title company handles it at closing). If the house is in Washington State, different rules apply, including its excise tax.
- Property taxes get prorated at closing automatically; you don't need to do anything.
- Selling costs reduce your gain. Commissions and closing costs subtract from the sale price for tax purposes. In a direct sale to us there are no commissions, so the math is simpler: the offer is the number.
- Proceeds themselves aren't "income." Receiving your share of a sale isn't taxed as income; only the gain over basis is, as above. Heirs splitting proceeds each report their share of any gain.
What this means for your decision
Families sometimes rush a renovation or hold an empty house for months out of vague tax fear. Usually the stepped-up basis means the tax tail shouldn't wag the dog: sell when and how it makes sense for the family, whether that's fixed-up on the market or as-is for cash. Meanwhile a vacant house costs real money every month in taxes, insurance, and upkeep, which no tax rule gives back.
Get the one-hour CPA confirmation of your numbers, then decide freely. If an as-is cash sale is on your list of options, you can read how our process works, see how we handle houses still in probate, or just call and ask; estates are a large share of what we buy, and there's never pressure to move faster than the family wants.