Inheriting a home is a strange paradox. Overnight you’re left with a valuable asset while still processing the loss of the person who left it to you. Understanding the tax consequences of selling an inherited property in Seattle can genuinely shape which decision makes sense for you.
How Stepped-Up Basis Works
The single most important concept here is “stepped-up basis.” When someone passes away, the tax basis of their property generally resets to its fair market value on the date of death, not what they originally paid for it decades ago. If your parents bought their Seattle house in 1985 for $60,000 and it’s worth $650,000 today, your basis as the heir is roughly $650,000, not $60,000.
This matters enormously. It means most of the appreciation that happened during the original owner’s lifetime is never taxed to you at all.
How Gains and Losses Get Taxed
Once you know your stepped-up basis, capital gains tax only applies to appreciation that happens after you inherit the property. If the house is worth $650,000 at the date of death and you sell it a year later for $665,000, you’d owe capital gains tax on roughly $15,000, not the full sale price and not the decades of appreciation before you owned it.
Inherited property also automatically qualifies for long-term capital gains treatment regardless of how long you personally held it, which is a meaningful benefit since long-term rates are lower than short-term ones.
Washington’s Real Estate Excise Tax
Separate from federal capital gains, Washington charges a Real Estate Excise Tax (REET) on the sale itself, paid by the seller on a graduated scale based on sale price. It applies whether or not you owe any capital gains tax, so it’s worth budgeting for as its own line item.
Get Professional Guidance Before You Sell
I’m not a CPA, and the exact numbers depend on your specific estate, whether other heirs are involved, and how the property was titled. Before you sell, a short conversation with a CPA who handles estate sales is worth far more than any general guide, including this one.
What If Multiple Heirs Inherited the House Together
Each heir generally gets the same stepped-up basis on their share, calculated from the same date-of-death value. Where it gets more complicated is if one heir wants to buy out the others, or if the house was rented out for a period before selling, both of which change the math. This is another reason a CPA conversation before selling is worth the hour, especially when siblings are involved and everyone wants to know their number is calculated the same way.
One Rule That Surprises People: Inherited Property Is Always Long-Term
Normally, whether a capital gain counts as short-term or long-term depends on how long you personally owned the asset, and short-term gains get taxed at higher ordinary income rates. Inherited property is a specific exception: the IRS automatically treats it as long-term, even if you sell it one month after inheriting it. That’s a meaningful benefit, since long-term capital gains rates are lower than short-term rates, and it means there’s no reason to hold onto an inherited house for a full year just to get better tax treatment on the sale.
What Happens If the House Appreciates After You Inherit It
Using the earlier example, say the stepped-up basis is $650,000 on the date of death, but the market moves and you end up selling eight months later for $675,000. You’d owe long-term capital gains tax on that $25,000 difference, the appreciation that happened after you inherited it, not on the full $675,000 and not on the decades of appreciation that happened before the original owner passed away. Selling relatively soon after inheriting, which is common with heirs who don’t want to manage a rental or keep paying carrying costs, tends to keep this gap small.
If you’d like to talk through timing or get a no-obligation cash offer on an inherited Seattle property, call (206) 900-8173 or send us a message.