Do You Have to Pay Taxes When You Sell an Inherited House?

If you recently inherited a house and are thinking about selling it, one of the first questions that comes to mind is: will I owe taxes on this?

The short answer is — it depends, but in most cases, you'll pay far less than you'd expect. Here's a simple breakdown.

The Good News: The Step-Up in Basis

When you inherit a home, the IRS gives you something called a step-up in basis. This means your cost basis on the home is reset to the market value of the home on the date the original owner passed away — not what they originally paid for it.

Example:

• Your parent bought the home in 1985 for $60,000

• When they passed, it was worth $200,000

• You sell it for $210,000

• You only owe taxes on $10,000 — not $150,000

That step-up saves most heirs a significant amount of money.

What Tax Do You Actually Pay?

If you sell the home, you may owe capital gains tax on any profit made above that stepped-up value. The rate depends on how long you hold it before selling:

• Sell within a year → Short-term capital gains (taxed as ordinary income)

• Sell after a year → Long-term capital gains (typically 0%, 15%, or 20% depending on your income)

Most people who sell quickly after inheriting still qualify for long-term rates because the IRS treats inherited property as automatically long-term, regardless of how long you actually owned it.

What If You Sell It At or Below the Inherited Value?

If you sell the home for equal to or less than the stepped-up value, you owe zero capital gains tax. This is actually pretty common, especially if you sell quickly after inheriting.

What About Michigan Specifically?

Michigan does not have an inheritance tax or estate tax at the state level. So as a Michigan seller, you're only dealing with federal capital gains — which makes it a little simpler.

One More Thing: The Primary Residence Exclusion

If you moved into the inherited home and lived in it for at least 2 of the last 5 years, you may qualify to exclude up to $250,000 in gains ($500,000 if married) from taxes entirely.

Want to Sell Your Inherited House Fast in Metro Detroit?

If you inherited a house that needs work, has tenants, or you just want it gone quickly — selling to a cash buyer is often the fastest and simplest route. No agent, no repairs, no waiting.

At Real Time Home Buyers Metro Detroit, we buy inherited houses in Michigan as-is, for cash. No repairs. No commissions. No hassle. We make it simple so you can move on with peace of mind.

📞 Call or text us today: 248-509-5398