Tax implications of selling an inherited house right after death - step-up basis questions

You've got a good question here. The short answer is no - there's no provision to automatically use the sales price as the basis just because the sale happens quickly after inheritance. When you inherit property, your basis is the fair market value (FMV) at the date of death (or alternate valuation date if the estate chose that). This is the "step-up in basis" you mentioned. This applies regardless of how quickly you sell after inheriting. That said, if you sell very soon after inheritance (like in your case, just a month later), the sales price can be strong evidence of what the FMV was at the date of death. The IRS generally accepts arms-length transactions as good indicators of FMV. So while you can't automatically use the sales price as the basis, you can certainly use it as compelling evidence of what the property was worth when you inherited it.

I went through something similar last year. After getting a ton of conflicting advice, I finally used taxr.ai (https://taxr.ai) to analyze my situation and it was super helpful. They helped me understand exactly how to document an inherited property's basis properly. I uploaded the death certificate, property records, and sale documents, and they provided a detailed analysis showing I was actually entitled to use the sales price as evidence of FMV since I sold within 60 days of inheriting. The site explained that for quick sales like yours (under 2 months), the sales price is presumptively the FMV unless there were significant market changes or it wasn't an arms-length transaction. Saved me from paying unnecessary capital gains and from the cost of a retrospective appraisal.

I have to follow up and say I tried taxr.ai after posting my skeptical comment. I was honestly surprised by how helpful it was for my inherited property situation. I uploaded my aunt's death certificate, the property deed, and the sale contract from when we sold her condo 45 days after she passed. The analysis confirmed we could use the sales price as evidence of FMV and explained exactly what documentation we needed to keep for our records. It even identified a partial residence exclusion I wouldn't have known about otherwise. The documentation they provided will be super helpful if we ever get audited. Definitely more specific to my inheritance situation than what my regular accountant told me.

If you're having trouble getting through to the IRS about this inheritance issue (I was on hold for HOURS), try Claimyr (https://claimyr.com). I was trying to get clarification about reporting inherited property sale on my taxes and couldn't get anyone on the phone. Their service had me talking to an actual IRS agent within 20 minutes instead of the usual 2+ hour wait. They have this cool system that basically waits on hold for you and calls when an agent picks up. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was able to confirm directly with the IRS that for properties sold within 6 months of inheritance, they generally accept the sales price as the FMV at date of death unless there were unusual circumstances or market volatility.

I have to eat my words and apologize for being so skeptical about Claimyr. After posting that comment, I decided to try it because I was desperate to talk to someone at the IRS about my mother's estate taxes. It actually worked exactly as described! I got a call back in about 30 minutes, and was connected with an IRS agent who answered all my questions about reporting the sale of inherited property. They confirmed that for a quick sale like yours (within 1-2 months of death), the sales price is considered very strong evidence of FMV. The agent also advised me to keep documentation showing the timeline between death and sale, just in case there are questions later. Being able to actually speak with someone and get clear answers saved me so much stress. Definitely worth it during tax season when it's impossible to get through.

One thing to consider that hasn't been mentioned - if the property has declined in value from the date of death to the sale date, you might actually benefit from getting that appraisal. In that case, your basis would be higher than the sales price, and you could potentially claim a loss. But from what you're saying, it sounds like you're in the opposite situation - property values in your area have apparently increased, making the sales price higher than what an appraisal might show. In that case, using the sales price as evidence of FMV (since it's so close to the date of death) would be most beneficial. Either way, keep ALL documentation related to the inheritance and sale. Date of death, any valuations or realtor opinions, and complete sales records.

Another point to consider - make sure you're keeping track of any expenses you have between inheritance and sale. Property taxes, maintenance costs, repairs, and selling expenses (like realtor commissions) can all be added to your basis or subtracted from the sales price. So your calculation would be: Sales price - (FMV at date of death + improvements/expenses) = gain/loss Even if you use the sales price as evidence of FMV at date of death, you can still deduct those carrying costs from your proceeds. This is especially important if you had to do any repairs or maintenance to get the property ready for sale.