Losing a loved one is never easy. If you inherit property, there are some things you need to know that could potentially save you thousands of dollars when you decide to sell the property.
Generally, when you inherit property, it receives a step-up in basis. Basis is the cost of the property when it is purchased. However when a property is inherited, the basis is allowed to equal (to be stepped-up to) the fair market value of the property on the day of the decedent's death. This becomes important when you decide to sell the property and have to calculate capital gains tax.
For example, let's say your grandfather purchased a home in 1960 for $40,000, which was his basis. On the day he died, the fair market value of the home is $250,000. You later inherit the home, so your basis is $250,000. If your grandfather had gifted you the home prior to death, your basis would have only been $40,000.
Because of this IRS provision, any appreciation that occurs during the decedent's lifetime will never be taxed.