Inherited House

A reader asks, “Someone inherits a house. I understand that if it sold within 6 months, the house steps up in basis and in general there is no tax due. What reporting requirements are there. Do you need to report the sale on your return, what other issues tax-wise would there be?”

Answer:
There is no time period requirement in which to sell a house to get the step-up in basis. The step-up in basis just occurs at the date of death. I recommend to my clients to have an appraisal done within a reasonable time period to be able to support the new cost basis to the beneficiary. There is no reporting required to get the new basis, and the house could be sold decades later and you still have that step-up in basis. But you do have to report the sale on your return.

The 6 months you are referring could possibly be a general time frame in which there is presumed to be no change in market value, so the selling price is assumed to be the market value at date of death which equals the new basis. hence, no gain or loss. The 6-month date is also an alternate valuation date which provides taxpayers the option to choose to use a date six months subsequent to the date of death to value an estate.