The step-up: your basis is the value at death
Basis is the number you subtract from the sale price to find your taxable gain. For a house you buy, it is what you paid. For a house you inherit, IRS Publication 551 says the basis is generally one of these:
- The fair market value (FMV) on the date of the person’s death, which is the usual case.
- The FMV on the alternate valuation date, but only if the personal representative chooses it on a federal estate tax return (Form 706). That return is only filed for large estates.
- Special-use value (farm or closely held business land) or a reduction for a conservation easement, which are rare for a north-of-Boston house.
This is the "step-up". If your parent paid $120,000 in 1985 and the house was worth $640,000 on the date of death, your basis is about $640,000, not $120,000. The gain that built up during your parent’s life is not taxed to you (IRS Pub. 551).
If the estate had to file a federal estate tax return, the executor gives heirs a Schedule A (Form 8971) showing the value, and certain heirs must use that value as their basis. Otherwise you can use the appraised value at date of death. Federal filing is only required for very large estates (the 2025 line was $13,990,000 per Pub. 559).
Get a date-of-death value in writing
In practice, the cleanest proof is a written appraisal by a licensed Massachusetts residential appraiser with a valuation date equal to the date of death. The personal representative needs a date-of-death value for the inventory anyway (M.G.L. c. 190B s. 3-706), so one appraisal serves both purposes.
A broker’s opinion of value or a county assessor’s figure is weaker evidence. The assessed value is not the market value. Keep the appraisal, the inventory and the closing statement together in one folder, because you may need them years later to back up your basis.
If you did not get an appraisal at the time, you can often still get a retrospective one. The longer you wait, the harder it is for the appraiser to find comparable sales from that date, so do it early. Ask your CPA about the best evidence for your situation.
You can compare your appraisal to the sale price in the capital gains calculator, and the general rules in capital gains tax on a home sale in Massachusetts.
How the gain is figured when you sell
Taxable gain is the sale price, minus selling costs (agent commission, deed excise tax, legal fees), minus your basis. Here is an illustration with made-up round numbers, not a quote:
| Line | Amount |
|---|---|
| Value at date of death (your basis) | $640,000 |
| Sale price | $650,000 |
| Selling costs | $35,000 |
| Taxable gain | Sale price minus costs minus basis = -$25,000, so no gain |
| If the sale price were $700,000 | $700,000 - $35,000 - $640,000 = $25,000 gain |
So a house sold for roughly its date-of-death value, after costs, often produces no taxable gain, and can produce a loss. The longer the estate holds the house in a rising market, the more gain there can be. Property tax, insurance and utilities for the months between death and sale are a cost of holding; ask your CPA whether any are deductible on the estate return. We did not verify those rules.
Who reports the sale. If the estate sells while the personal representative holds title, the gain or loss is reported on the estate’s Form 1041. If the house is deeded to the heirs first, they report it on their own returns. Pub. 559 says a loss on a house the estate holds to sell is generally a capital loss that may be deductible, but if the house is held for a beneficiary to live in, any loss is not deductible.
Selling within a year: still long term
Normally, gains on property held one year or less are taxed as short-term gains at ordinary rates. Inherited property is different. The IRS says that if you sell inherited property that is a capital asset, the gain or loss is treated as long term regardless of how long you held it (IRS Pub. 550). Pub. 559 says the same about an estate that sells property it got from a decedent.
Massachusetts defines short- and long-term gain by the federal rules (M.G.L. c. 62 s. 1). So a quick sale of an inherited house is taxed as long term in Massachusetts too.
The $250,000 home-sale exclusion usually does not apply
The federal exclusion for gain on a home sale (up to $250,000 for one person, $500,000 for a married couple filing jointly) requires that you owned the home and used it as your main home for at least 24 of the 60 months before the sale (IRS Pub. 523). If you inherit a house you never lived in, you do not meet the use test. If you moved into the house after inheriting and lived there for at least 2 years, you might. A surviving spouse has some extra time rules; ask your CPA.
Because of the step-up, most heirs do not need the exclusion anyway.
Massachusetts: estate tax, no inheritance tax, and 5% on the gain
| Tax | Rule | Source |
|---|---|---|
| Estate tax (paid by the estate) | Return required if the gross estate plus adjusted taxable gifts is over $2,000,000 for deaths on or after Jan. 1, 2023. A $99,600 credit applies. Due 9 months after death. | Mass. DOR estate tax guide |
| Inheritance tax (paid by the heir) | The DOR describes the estate tax as "a transfer tax on the value of the decedent’s estate before distribution to any beneficiary". We did not find a separate state inheritance tax for current deaths. Confirm with your CPA. | Mass. DOR |
| Tax on the gain when you sell | 5% on long-term gains; short-term gains 8.5%; extra 4% surtax on income over $1,107,750 in 2026 | Mass.gov tax rates |
A house plus other assets can push an estate past $2 million, and if so the estate tax return and a lien release are part of a sale. See the executor checklist.