What Taxes Do You Pay When Selling an Inherited House in Washington State?
Often little or none. When you inherit a house, its tax basis resets ("steps up") to its fair market value on the date of death, so federal capital gains tax applies only to any gain after that date, at long-term rates. Washington's own capital gains tax does not apply to real estate, and Washington has no inheritance tax. Washington's estate tax is paid by the estate, not the heirs, and only when the whole estate is over $3,000,000 (deaths from July 1, 2026). The seller pays the real estate excise tax (REET) at closing, as on any sale.
- Federal capital gains: Only on gain above the value at the date of death, always at long-term rates. Selling within a year or so of the death often means little or no gain.
- Washington capital gains tax: Does not apply to real estate (RCW 82.87.050).
- Inheritance tax: Washington has none.
- Washington estate tax: Paid by the estate before distribution, only if the whole estate is over $3,000,000 (deaths from July 1, 2026; $3,076,000 for January–June 2026).
- Real estate excise tax (REET): Paid by the seller at closing; the rate depends on the price and the county.
- Your parent bought the house for $80,000. It was worth $650,000 when they died.
- Your tax basis is $650,000, not $80,000. The $570,000 of growth during your parent's life is never taxed as a capital gain.
- You sell eight months later for $670,000 and pay $40,000 in commission, excise tax and closing costs.
- $670,000 − $40,000 − $650,000 = −$20,000. There is no taxable gain.
The basis is only as good as the evidence for it: a date-of-death appraisal is what documents the $650,000. Why the valuation matters.
General information, not tax advice. Work with a CPA or tax attorney on your own situation.
Quick answers
The questions people ask most
Does a surviving spouse get a new tax basis on the whole house?
Often, yes. For federal income tax, inherited property generally takes a new basis equal to its value at the date of death, and for community property both halves usually get the new basis at the first spouse's death, not just the half that belonged to the spouse who died. A date-of-death appraisal documents that value for a later sale; confirm with a CPA how the home was held.
Is real estate excise tax due when the estate sells?
Yes. Passing a house to heirs by inheritance is exempt from Washington's real estate excise tax, but when the estate or the heirs later sell to a buyer, the sale is taxed like any other, usually paid by the seller at closing.
What This Means in Practice
When someone inherits a house, an early question is usually about taxes: if a parent bought a home for $80,000 decades ago and it is now worth $650,000, does the heir owe taxes on that entire gain?
Generally, no. The IRS provides what is called a "stepped-up basis," which resets the property's cost basis to its fair market value at the date of the owner's death. If you sell shortly after inheriting, there is typically little or no taxable gain.
However, if you hold the property for an extended period and it appreciates further, you may owe capital gains tax on the difference between the stepped-up basis and the eventual sale price. The longer you hold, the more important it becomes to track value changes and consult with a tax professional.
Key Tax Concepts to Understand
Stepped-up basis. This is the single most important concept. When you inherit property, the IRS resets the cost basis to fair market value at the date of death. This eliminates the capital gains that accumulated during the original owner's lifetime.
Capital gains tax. If you sell the property for more than the stepped-up basis, the gain is subject to federal capital gains tax. Inherited property is treated as held for more than a year, so the long-term rate applies even if you sell soon after inheriting; the rate then depends on your income.
Washington State capital gains tax. Washington's capital gains tax on long-term gains does not apply to the sale of real estate (RCW 82.87.050), so selling an inherited Washington house does not trigger it. Other assets in the estate may be a different matter; ask the estate's tax professional.
Estate tax vs. inheritance tax. Washington has a state estate tax; the Department of Revenue lists an exclusion of $3,000,000 for deaths from July 1, 2026 ($3,076,000 for January to June 2026). There is no separate inheritance tax. The estate tax is paid by the estate before distribution, not by individual heirs.
Real estate excise tax (REET). Washington charges a real estate excise tax on all property sales. The rate varies by sale price and county. This is typically paid at closing and is a standard part of any Washington real estate transaction.
Why Accurate Valuation Matters
The stepped-up basis depends entirely on establishing the property's fair market value at the date of death. If this value is not documented accurately, heirs may end up paying more in capital gains tax than necessary, or face challenges from the IRS.
A professional appraisal conducted close to the date of death provides the most reliable documentation. This is one of the few areas where the cost of an appraisal can directly save money in taxes.
If time has passed since the death and no appraisal was done, a retrospective valuation may still be possible. A certified residential appraiser with experience in estate work can help determine the appropriate value.
Need Help Understanding Your Property's Value?
An accurate valuation is the foundation for sound tax planning. The featured broker can help you understand the property's current and historical value so you and your CPA have a number to work from.
Schedule a ConversationCommon Mistakes to Avoid
- Assuming you owe taxes on the full appreciation from the original purchase price; the stepped-up basis usually eliminates most or all of this
- Failing to get an appraisal at or near the date of death, which is the most important step for establishing your tax basis
- Waiting too long to sell without understanding how additional appreciation affects your tax liability
- Confusing estate tax with capital gains tax; they are separate and apply in different circumstances
- Making decisions about the property without consulting a tax professional; what seems like a simple choice can have significant tax implications
When to Get Professional Guidance
Tax questions around inherited property sit at the intersection of real estate, estate law, and tax planning. No single professional covers all of it, so the work benefits from coordination.
A CPA or tax attorney can advise on the tax implications. An estate attorney manages the legal framework. And a real estate broker with appraisal expertise can provide the valuation documentation that supports the entire process.
If you are uncertain about any aspect of the tax situation, getting professional guidance early is usually less expensive than correcting mistakes later.
Common Questions
Inherited Property Tax FAQs
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Professional Disclosure
Real Property Planning is an educational and connection hub. It does not provide legal, tax, accounting, financial, brokerage, or appraisal services. Professionals referenced on this site are independently licensed and operate through their own separate businesses. Real estate brokerage services are provided by David Stein, a licensed Washington broker, through eXp Realty. Appraisal services are provided by David Stein through Stein Appraisal. Read the full disclaimer.