Capital gains on inherited property are usually figured from the home’s value on the day the owner died, not from what they paid for it decades ago. Because of that IRS rule, an heir who sells within a few months can end up with little or no taxable gain. Add the fact that neither Georgia nor Tennessee charges an inheritance tax today, and the tax picture for most families in Dalton, Chattanooga and the towns between is a lot calmer than they fear.
What follows explains the general rules in plain terms, using official Georgia, Tennessee and IRS sources. It is general information, not tax advice. Every estate is different, so take your own numbers to a CPA before you file anything.
Georgia Does Not Charge an Inheritance Tax
The Georgia Department of Revenue answers this directly on its estate tax FAQ: Georgia has no inheritance tax. The same page explains that Georgia’s estate tax was eliminated by law, and the statute now says no estate taxes will be levied by the state. The old Georgia estate tax only comes up for people who died many years ago, and the department notes that some people say “inheritance tax” when they really mean estate tax.
So if your mother left you her house in Whitfield or Catoosa County, the State of Georgia does not send you a bill just because you received it.
Tennessee Ended Its Inheritance Tax After 2015
Tennessee used to have an inheritance tax, and plenty of families in Hamilton and Bradley counties still remember paying it. According to the Tennessee Department of Revenue, the inheritance tax is no longer imposed after December 31, 2015, and the department tells people not to file a return for anyone who died in 2016 or later.
If your relative died before 2016, talk to a CPA or estate attorney, because the older rules may still apply to that estate.
Federal Estate Tax Is Filed by the Estate, Not the Heir
There is a federal estate tax, but it applies to the estate of the person who died, not to you as an heir. The IRS estate tax page explains that a return is required only when the gross estate, plus certain lifetime gifts, is valued above the filing threshold for the year of death, and it notes that most simpler estates don’t need one. The executor should confirm with a CPA whether the estate has to file.
For most heirs, the real question is what happens when they sell.
How Capital Gains on Inherited Property Are Figured
When you sell property for more than your “basis,” the difference is a gain, and gains can be taxed. If you bought a house yourself, your basis starts at the price you paid. Inherited property works differently.
Your starting value is usually the value at death
The IRS says in Publication 551 that the basis of inherited property is generally its fair market value on the date the person died. People call this a “stepped-up basis.” Your parent’s original purchase price from thirty or forty years ago usually doesn’t come into it.
In practice, the home’s market value on the day your father passed becomes your starting point. If you sell a few months later for about that amount, your selling costs may leave little or no gain to tax. Your CPA will run the actual numbers.
A few exceptions apply. If an estate tax return was filed, the value reported on it is generally your basis. An executor can choose a different valuation date in some cases. And if you or your spouse gave the property to the person who died within a year before their death, the step-up generally does not apply.
The gain counts as long-term
The IRS instructions for Form 8949 say a sale of inherited property is generally reported as a long-term gain or loss, no matter how long you held it. Long-term and short-term gains can be taxed at different rates, so ask your CPA which rate applies to you.
You may need to report the sale even with no gain
The IRS also notes in its gifts and inheritances FAQ that the gross proceeds from selling inherited property count when you work out whether you need to file a return. So even if there’s little or no gain, plan on reporting the sale, and keep your closing statement.
Curious what the house would bring today? Daniel can look at the property and usually send a cash figure within a day. Saying no is completely fine. Either way, it gives your CPA a real number to work from. Call 706-264-1785 or use the short form, and if listing the home looks like a better fit, he’ll talk you through that as well.
Waiting Years to Sell Can Change the Tax Math
Because your basis is fixed at the value on the date of death, the main tax risk comes from holding the house for years while prices rise. Holding also costs money every month: insurance, utilities, upkeep and the yearly property tax bill. Our article on property taxes when selling a house in Georgia explains how those get divided at closing.
The rules also shift if an heir moves into the house and makes it their main home, or rents it out for a few years. The IRS home sale exclusion, for example, generally requires that you owned the home and lived in it for at least two of the five years before the sale, as Publication 523 explains. Those mixed situations are where a CPA is worth every penny.
Records Your CPA Will Want
Gather these before tax season so nothing has to be guessed:
- A date-of-death value for the house, such as an appraisal from a licensed appraiser
- The death certificate and probate paperwork, if there was a probate case
- Any estate tax return that was filed
- Receipts for improvements made after the death
- The final closing statement from the sale
If you sell directly to Daniel, there’s no agent commission or seller fee on the closing statement, Daniel covers the closing costs, and a local title company prepares the paperwork.
Choosing How to Sell an Inherited House
Taxes are one part of the decision. The other part is how much work and waiting the family can take on.
A direct cash sale suits heirs who live far away, have a house that needs work or want to settle the estate on a set date. Daniel buys as-is, so there are no repairs, cleaning or showings. Family can take the things that matter and leave the rest behind.
A listing may suit a house in good shape when the heirs don’t mind waiting for a retail buyer. Daniel is also a licensed Georgia Realtor, and he’ll tell you plainly if putting the house on the MLS looks like the better option.
For the bigger picture, read our guides on your choices with an inherited house and how to sell an inherited property in Georgia, or see the ways we help on our sell your house page.
Take These Points to Your CPA Before You File
Most families find the answers simpler than they feared. Georgia has no inheritance tax, Tennessee stopped charging one after 2015, and capital gains usually start from the home’s value on the date of death. Ask your CPA to confirm the date-of-death value, whether any exception to the step-up applies and which returns you need to file.
When you want a real number for that conversation, you can get your cash offer or call Daniel at 706-264-1785. You’re under no obligation, and if you do sell, you set the closing date.
Frequently Asked Questions
Do I pay income tax on the house itself when I inherit it?
The IRS questions heirs usually run into come up when the house is sold. Its gifts and inheritances FAQ says money from selling inherited property is generally taxable income, and the gain is measured against your basis. Other assets in the estate, such as retirement accounts, can follow different rules, so ask a CPA to look at the whole picture.
What if the house sells for less than its value at death?
Then you may have a loss instead of a gain. Whether you can deduct it depends on your own situation, including what the family did with the house after the death, so ask your CPA before you file.
How do I prove what the house was worth on the date of death?
Many families hire a licensed appraiser to give a value as of that date, even if the appraisal is done months later. When the estate filed a Form 706, the figure reported there generally controls instead. Keep whatever you use with your tax records.
Does it matter if the house is in Georgia but I live in another state?
It can. State income tax rules differ, and when the property sits in one state and you live in another, you may have more than one state to think about. A CPA can tell you which state returns, if any, you need to file.
Does selling quickly mean I owe more tax?
Not because of the holding period. The Form 8949 instructions treat a sale of inherited property as long-term, even if you owned it for only a few weeks. A sale soon after the death also tends to land close to your date-of-death basis, which can keep any gain small.