What Taxes Do You Owe When Selling an Inherited House in Texas?

One of the first concerns heirs raise when they inherit Texas real estate is the tax question: How much of this do I have to pay in taxes? The answer, for most Texas heirs, is far better than they expect.

This guide covers every tax that could apply when selling an inherited Texas property — and why most heirs end up owing little or nothing in taxes on the transaction.

Texas Has No Inheritance Tax and No Estate Tax

Start here: Texas does not have an inheritance tax or a state estate tax. This is a meaningful advantage over states like Maryland, Pennsylvania, Oregon, and others that impose state-level inheritance taxes of 5–16%.

In Texas, heirs receive inherited property without paying any state tax on the transfer.

The federal estate tax does exist, but applies only to estates with a gross value above the federal exemption threshold — currently $13.61 million per individual ($27.22 million for married couples with proper planning). The vast majority of Texas probate estates fall well below this threshold. If the total value of the deceased’s estate is under $13.61 million, there is no federal estate tax.

The Step-Up in Cost Basis: The Most Important Tax Concept for Heirs

The step-up in cost basis is the single most important tax concept for heirs inheriting Texas real estate, and it’s the reason most heirs pay zero capital gains tax when they sell. For a broader overview of your options once you have clear title, see selling inherited property in Texas.

Here’s how it works:

What “cost basis” means: In a typical real estate sale, you pay capital gains tax on the difference between what you paid for the property (your “cost basis”) and what you sell it for. If someone bought a house in 1985 for $80,000 and sold it in 2026 for $450,000, their capital gain is $370,000 — and they’d owe capital gains tax on that amount.

The step-up: When you inherit property, your cost basis is automatically “stepped up” to the fair market value of the property on the date of the decedent’s death — not what the original owner paid for it decades ago.

The practical effect: If the property was worth $450,000 when the owner died, and heirs sell it for $455,000 six months later, their capital gain is only $5,000 — not $370,000. In most cases, if heirs sell relatively soon after death at or near the date-of-death value, their taxable gain is minimal or zero.

When Capital Gains Tax Applies to Inherited Texas Property

Capital gains tax on inherited Texas property can apply in these situations:

Sale Price Significantly Exceeds Date-of-Death Value

If the estate holds the property for an extended period — say, two or three years — and the market appreciates significantly, heirs will have a taxable gain equal to the appreciation since the date of death.

Example: Property worth $400,000 at death. Estate holds it for 2 years. Sold for $480,000. Capital gain: $80,000.

Tax rate: Inherited property sold more than one year after the date of death is taxed at long-term capital gains rates regardless of how long the estate or heirs actually owned it. Long-term capital gains rates are 0%, 15%, or 20% depending on the heir’s income — significantly lower than ordinary income tax rates.

(2024 thresholds; adjust for current year)

Sale Before Date-of-Death Appraisal is Established

If the estate sells very quickly and the sale price is used as evidence of date-of-death value (common when no formal appraisal was obtained), the cost basis may be established at the sale price — resulting in zero gain.

Texas Property Taxes: What the Estate Owes

While Texas has no income or inheritance tax, property taxes are a significant ongoing cost that the estate owes during the administration period:

Prorated property taxes at closing: At closing, property taxes are prorated between the estate (seller) and the buyer based on the closing date. If property taxes for the year are $8,000 and the estate closes on July 1, the estate pays approximately $4,000 (for January–June) and the buyer pays $4,000 (for July–December). This is handled automatically by the title company.

Delinquent property taxes: If the deceased owed back property taxes, they become a lien against the property and must be paid at closing. Delinquent taxes in Texas accrue at 1% per month in interest and penalties plus a potential 20% attorney collection fee after July 1. Pull a tax certificate early from the county tax assessor-collector to know what’s owed.

Homestead exemption loss: The deceased’s homestead exemptions terminate on January 1 of the year following death. This is one of the key carrying costs that make a quick probate sale financially advantageous. The estate loses the standard homestead exemption, any over-65 exemption, and any school district tax freeze. For a $500,000 home, this can add $2,000–$5,000 per year in property taxes — a carrying cost that accumulates quickly.

Do Heirs Pay Tax on Money Distributed from an Estate?

Distributions from an estate to heirs representing inherited property are not taxable income to the heir. The heir receives the inheritance (or proceeds from selling the inheritance) without owing federal income tax on the distribution itself.

What can be taxable: interest earned on estate accounts during administration, rental income from estate property during administration, and capital gains from property sold by the estate (which are reported on the estate’s income tax return, Form 1041).

Community Property Step-Up: A Texas-Specific Advantage

Texas is a community property state, and this creates a particularly favorable tax outcome for surviving spouses:

In a community property state like Texas, both halves of community property receive a step-up in basis at the first spouse’s death — not just the deceased spouse’s half.

Example: A Texas couple bought a house in 1990 for $120,000. At the first spouse’s death in 2026, the house is worth $600,000. In a non-community-property state (like Florida), only the deceased spouse’s 50% share ($300,000 value) would step up — the surviving spouse’s basis in their 50% share would remain at $60,000 (their original cost). In Texas (community property), both halves step up — the surviving spouse’s basis in the entire property becomes $600,000, and they can sell immediately with zero capital gain.

This is one of the most significant tax benefits of Texas’s community property system, and it is frequently underappreciated by surviving spouses who have been told they’ll owe capital gains tax.

Net Investment Income Tax (NIIT)

Higher-income heirs should be aware of the 3.8% Net Investment Income Tax, which applies to capital gains (including gains from selling inherited property) for taxpayers with modified adjusted gross income above:

• $200,000 (single filers)
• $250,000 (married filing jointly)

The NIIT is applied on top of the regular capital gains tax rate. A high-income heir selling an inherited Texas property with significant appreciation could owe up to 23.8% on the gain (20% capital gains + 3.8% NIIT). This is still far less than what they would have owed without the step-up in basis.

When Should You Consult a Tax Professional?

While most Texas heirs owe zero capital gains tax on inherited property, consult a CPA or tax attorney if:

• The estate has held the property for more than one year and significant appreciation has occurred
• The heir is a high-income taxpayer (potential NIIT exposure)
• The property was used as a rental and has depreciation recapture exposure
• There is any question about whether property is community property, separate property, or mixed
• The estate value approaches the federal estate tax threshold

A one-hour consultation with a CPA familiar with Texas estate matters typically costs $200–$400 and can clarify the tax picture before you make decisions about timing or how to sell.

Summary: Tax Impact for Most Texas Heirs

The step-up in cost basis is the most powerful tax protection available to heirs — and it applies automatically to inherited Texas real estate. For most estates that sell within a reasonable time after death, the tax bill is far smaller than heirs fear.

Questions about selling an inherited Texas property? Our initial consultation is free and covers the full picture — not just taxes, but market value, timing, and next steps.