Inheriting a House: What to Know

Inheriting a house can feel daunting for emotional, logistical, and financial reasons

I’ve never planned to live in or rent out my mom’s home after she dies.

My sister might feel differently. More likely, though, we would need to sell it at some point.

How long would sorting through her possessions take? How much money would we need to spend on repairs before listing the home?

The entire process sounds daunting. And that’s before you factor in the loss of a loved one.

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The Reality of Housing’s Place in Inheritance Planning

A 2023 Charles Schwab survey revealed how many Millennials may face this same situation. The company found that more than 75% of parents plan to leave property to their children when they die.

Inheriting a house may be the most neglected aspect of inheritance planning. It’s easier to think about possessions and investments. After all, most of us don’t even want to deal with maintenance and repairs on our own homes.

Most Millennials who inherit assets from loved ones already feel sadness, stress, and guilt. Taking ownership of that person’s house only adds to the burden.

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But one evening earlier this summer, my mom announced that she was selling my childhood home.

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Inheriting a House: The Timing and Process

I wasn’t totally shocked at the news.

Even so, she had lived in that blue, ranch-style house for 31 years. I knew she felt frustrated about ongoing maintenance. But I still assumed she would live there for the rest of her life.

As adults, many Millennial children still feel fondly about the home in which we grew up. We may not want our parents to sell the house. So we also avoid planning for what happens when we inherit the property.

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According to a Fannie Mae survey, only about 17% of Baby Boomers have or will sell their home during the latter stages of their lives. Similarly, a Redfin report finds that about one-third of Baby Boomers say they’ll never sell their home.

The choice about whether to sell a long-time home is hard for almost everyone. Few want to say goodbye to a place with so many memories. And sorting through possessions takes time, effort, and an emotional toll.

But for Millennials, this process can feel like an unexpected gift years later.

When a loved one sells their own home, this challenging work takes place with their help and guidance. Heirs then have fewer possessions to manage. And they’re less likely to encounter clutter and unwanted items years later. You also may feel less sentimental attachment to the new home.

But statistics suggest that almost half of us will still need to manage the entire process ourselves.

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Inheriting a House: The Tax Implications

The emotions of inheriting a house are inescapable. Then when the associated financial tasks arise, you can feel even worse.

I’m fortunate in that I could sort through the psychological impact of mom’s home sale in her presence. We could say “goodbye” to the house under positive circumstances.

But in the days that followed, I also wondered: am I prepared for the tax implications when I need to sell my mom’s next home?

The situation reminded me of a common (and very useful) personal finance maxim. When you preemptively address your financial questions, the tasks become more manageable. It also helps you avoid any worst-case scenario.

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Selling a house isn’t exactly fun. But if you’ve done it once, the process can feel straightforward. So most Millennials tend to worry about the tax implications of inheriting a house.

The good news is that you don’t need to fear these taxes. But you do need to do a little bit of research and make a few upfront decisions to ensure this outcome.

Let’s review three topics that you may want to consider when you inherit a house:

Do You Have a Home Appraisal? (Understanding Tax Basis)

From the IRS’s perspective, every home has a basis. This is the value for which your loved one purchased the property. When someone sells a house, the taxable gain is the difference between the sales price and the basis (minus any IRS exclusions).

But when a loved one dies, the home’s basis usually resets. In tax terminology, the heirs receive a “step up” in basis. In other words, the basis changes to the home’s fair market value as of the date of death. So let’s assume you sell the home shortly after death. In this case, the difference between the sales price and the new, updated basis should be very small. For you, this means little-to-no capital gains tax to pay.

For this reason, you should get a home appraisal in writing that values that property as of the date of death.

How Will You Use the Property? (Understanding Capital Gains)

Now let’s assume you choose not to sell the property.

Instead, you want to make the house your primary residence. As long as you meet the IRS’s ownership and use tests, you will qualify for favorable capital gains tax treatment when you sell. The IRS says:

“You’re eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.”

If you meet this criteria, the IRS allows you to exclude up to $250,000 ($500,000 if married filing jointly) of capital gains when you sell. But these exclusions aren’t available to estates and trusts. After all, they can’t live in the property.

As a result, you’ll want to document your use of the property if you believe you qualify for this exclusion.

Where Do You Live? (Understanding State Inheritance Taxes)

Instinctively, you may wonder about federal estate taxes first. But you’re more likely to owe state-level taxes.

These taxes will fall into one or two categories:

• Some states levy inheritance taxes. Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania each have an inheritance tax and/or an estate tax.
• Many states reassess property taxes after a change in ownership. As a result, the property taxes on the home may increase unless you qualify for some type of exclusion.

There isn’t much you can do to avoid these taxes, so preparation is your main task. Do your research as early as possible, and then make sure you have cash identified to make the payment.

Inheriting a House: The Good and the Bad

It’s easy for an inheritance worry to feel selfish and out-of-touch. Inheriting property is a tremendous privilege, right?

Of course. But that doesn’t mean your problems aren’t real. It doesn’t mean that your worries aren’t valid.

My mom’s choice to sell her home while she’s still in good health was a gift to both of us. But that doesn’t mean I’ll have an easy time — emotionally or logistically — when I inherit from her in the future.

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Recommended Money Reads for Millennials

If you liked this article, you may also want to check out:

• Millennials, Here’s What To Do With an Inheritance in 2025
• The 10 Best Financial Advisors for Millennials in the U.S. in 2025

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About Kevin Mahoney, CFP®

Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to free personal finance tips written specifically for Millennial parents. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your kids. And then when you’re ready, please send me your thoughts & questions!