Selling an inheriting a house is a mixed blessing—you gain property value overnight but also inherit upkeep, probate headaches, and a potential tax bill. In this guide we’ll unpack the tax consequences when selling a house I inherited in California, explain how federal and state rules really work, show a quick numbers example, and—importantly—highlight why a no‑hassle cash sale to Dad Buys Bay Area Houses can save you money and stress.
1. How the “step‑up” basis protects most heirs
When someone passes away, the IRS “steps up” the property’s cost basis to its fair‑market value on the date of death. That means your future capital‑gains tax is calculated on appreciation after you inherit—not on gains the deceased enjoyed over decades. A $120 k home bought in 1995 that’s worth $410 k today gets a new basis of $410 k, wiping out 25 years of paper profit. Peterson FoundationInvestopedia
2. Long‑term capital‑gains treatment—even if you sell right away
Whether you hold the home for a week or a decade, the IRS automatically treats any profit as long‑term capital gain. That unlocks lower rates (0 %, 15 %, or 20 %) versus ordinary income brackets. Investopedia
| 2025 long‑term capital‑gains brackets | Single filer | Married filing jointly |
|---|---|---|
| 0 % | $0 – $48,350 | $0 – $96,700 |
| 15 % | $48,351 – $533,400 | $96,701 – $600,050 |
| 20 % | $533,401 + | $600,051 + |
| Source: IRS thresholds for 2025 NerdWallet: Finance smarter |
Remember: The popular $250 k/$500 k home‑sale exclusion normally doesn’t apply unless you move in and live there for at least two of the past five years. Nolo
3. CA & local wrinkles to watch
⚖ Inheritance or estate tax. Only six states levy an inheritance tax and just a dozen collect estate tax. Verify whether CA is on either list. The current federal estate‑tax exemption is $13.61 million per person, so most estates pay nothing. Investopedia
🏠 Property‑tax reassessment. Many counties—including California’s—reset the assessed value when ownership changes, which can bump annual taxes by thousands. Filing for any “parent‑to‑child” or senior exemptions quickly can soften the hit.
🔑 Probate timeline. Standard probate in California averages 6–12 months, but heirs using a small‑estate affidavit (if the house plus other assets fall below the state threshold) can sometimes sell in as little as 45 days. NoloNolo
4. Real‑world example
Scenario: You inherit Grandma’s bungalow in California. Appraised value at death: $400,000. Six months later you accept a cash offer for $425,000 from Dad Buys Bay Area Houses.
- Adjusted basis (step‑up): $400,000
- Selling expenses (title, escrow, etc.): $10,000
- Net sales proceeds: $415,000
Taxable gain: $415 k – $400 k = $15,000 (long‑term).
Even at the 15 % bracket, the federal tax due is only $2,250—far less than most heirs fear.
5. Hidden taxes—and costs—heirs forget
Medicaid estate recovery. If the deceased used Medicaid for long‑term care, the state can file a claim against the house after probate closes. Selling quickly can cap accruing interest and maintenance costs before the claim is calculated. Nolo
Carrying costs. While you deliberate, you’re on the hook for utilities, insurance, HOA dues, and security. In California, average holding costs run $2,800+ per month on a vacant single‑family home (utilities, insurance, basic lawn care).
Capital‑gains creep. Real‑estate prices in California have climbed roughly X % year‑over‑year since 2020. Every month you hold the property, your potential taxable gain may grow.
6. Why heirs choose a cash buyer like Dad Buys Bay Area Houses
- Skip repairs. Older inherited homes often need $25 k–$60 k in updates. We buy as‑is so you keep that money in your pocket.
- Close before the first tax bill hits. Our typical closing in California is 14 days, versus 45–60 days on the MLS.
- Probate‑savvy team. We coordinate with your attorney and the court, so you avoid paperwork pile‑ups.
- Net more, stress less. By eliminating agent commissions, double mortgages, and months of holding costs, many heirs walk away with higher net proceeds than if they’d listed.
Key takeaways
1. Thanks to the step‑up basis, most heirs pay capital‑gains tax only on appreciation after inheritance.
2. Profits are always taxed as long‑term gains, securing friendlier federal rates.
3. Local factors—property‑tax reassessment, probate delays, Medicaid claims—can chip away at your inheritance if you hold the home too long.
4. A swift sale to Dad Buys Bay Area Houses locks in today’s stepped‑up basis, erases repair headaches, and puts cash in your hands on your timeline.
Ready to run the numbers on your inherited property? Call Dad Buys Bay Area Houses at (510) 776-7605 or fill out our quick form. We’ll provide a no‑obligation cash offer and a personalized tax‑impact breakdown within 24 hours, so you can grieve, plan, and move forward—without a surprise tax bill hanging over your head.