Taxes When You Sell an Inherited House in Washington: Stepped-Up Basis and What to Ask Your CPA

Do I owe tax when I sell an inherited house in Washington? Washington has no state income tax, and its capital gains tax exempts real estate. Federal tax and real estate excise tax can still apply, so your CPA decides the rest.

The most useful number in this conversation is the value of the house on the day your parent died. It sets your starting point for figuring out any gain, and most families forget to write it down.

I am a real estate broker, not a CPA or an attorney. I have been a licensed Washington broker since 2008 and I am a Certified Probate Real Estate Agent, so I hear the same tax questions from Seattle-area families over and over. This post is a map. It will not tell you what you owe. It will tell you which five questions to bring to your CPA and your estate attorney before the house hits the market. If you want the full sequence of steps first, start with my guide to selling a house in probate in Washington.

The five questions at a glance

Here is the whole map in one place.

#	Question to bring	Who to ask	Why it matters
1	What is my basis in this house, and how do we document it?	CPA	Basis is the starting point for any gain or loss
2	What happens if it sells for more or less than that value?	CPA	The difference is what gets measured
3	Does the Washington estate tax apply to this estate?	Attorney and CPA	The exclusion depends on the date of death
4	Who reports the sale: the estate or the heirs?	CPA	It depends on how and when the proceeds are distributed
5	What will the sale and the waiting cost me?	CPA and your broker	Excise tax, carrying costs, and timing all reduce what you net

Question 1: Find your stepped-up basis

Start with the idea behind the phrase. When you sell something for more than you paid, the profit is a gain. The IRS describes capital gain as the difference between your adjusted basis in an asset and the amount you realized from the sale, in its overview of capital gains and losses. Basis is, roughly, what you are treated as having paid.

For an inherited house, the rule is generous. IRS Publication 551 says the basis of inherited property is generally the fair market value on the date of the person’s death. That means the number is set by what the house was worth when your parent passed, whatever they paid for it. That reset is the “stepped-up” part, and it can wipe out decades of appreciation from the tax calculation.

Here is a hypothetical example. It is not a real client.

Hypothetical example	Amount
Parent bought the house in 1990	$200,000
Fair market value on the date of death	$1,100,000
Basis for the heir (generally)	$1,100,000
Appreciation during the parent’s lifetime	$900,000

Had the parent sold the day before dying, that $900,000 of appreciation would have been part of the gain. For the heir, the starting point moves up to $1,100,000, so the decades of growth are generally not what gets measured.

Two cautions. First, “generally” is doing real work. Publication 551 also lists exceptions, such as an alternate valuation date the estate can choose, and a rule that when the estate filed an estate tax return, the value reported there is what the heir uses. Second, a stepped-up basis does not make a sale tax-free. It raises the starting line. Your CPA decides how it applies to your family.

What to ask your CPA: “What is the basis for this house, which valuation rule applies to our estate, and what do you need from me to support it?”

Question 2: Compare the sale price to the stepped-up value

Then the difference between the sale and the basis is where a federal tax question starts. If it sells for less, you may have a loss instead. How either is reported is your CPA’s call.

The sale price is only half the picture. The other half is the number it is compared against. That is why I bring up the date-of-death value in the first meeting, before anyone talks about listing.

Why holding the house longer can add taxable gain

This is the part families do not see coming. The step-up freezes your basis at the date-of-death value. It does not follow the market afterward.

So if the market rises while the estate waits, the extra appreciation is measured against that frozen number. Say the house was worth $1,100,000 on the date of death in the example above, and it sells a year later for more. The increase after the date of death is gain that did not exist when your parent passed. Holding on does not erase it.

I am not telling anyone to rush. Sometimes waiting makes sense: a repair needs finishing, the family needs time to clear the house, or the legal timeline requires it. The wait has a tax dimension, though, and it is easier to ask early than to find out at filing time. If the market falls instead, your CPA can tell you how a loss is treated.

What to ask your CPA: “If we hold the house for several months, how does the sale price compare against the basis, and what could the extra time cost or save us?”

Does Washington tax the sale? Income tax and capital gains tax

Washington has no state personal income tax. That surprises people who have lived in states that tax a sale like this.

Washington does have a capital gains excise tax on certain long-term capital assets. The Department of Revenue’s page on the state capital gains tax lists real estate among its exemptions. So the sale of a house is not subject to that tax. Ask your CPA to confirm how it applies to your estate. That exemption covers the state tax only. It says nothing about federal tax.

Question 3: Check whether the Washington estate tax applies

This one is separate from the sale. The estate tax is a tax on the right to transfer property at death. The sale of the house does not trigger it.

The Washington Department of Revenue explains the rules on its estate tax page. Two points matter for a family deciding what to do with a house.

• The exclusion amount depends on the date of death. It has changed recently, so I will not quote a figure here. Check the current number for your parent’s date of death.
• The return and payment are generally due nine months after death, according to the Department of Revenue. That clock runs whether or not the house has sold.

The house counts toward the size of the estate. A house can be worth more than a family expects, and that can change how the estate compares to the exclusion. Your attorney and CPA will look at the whole estate together.

What to ask your attorney: “Based on the date of death and what the estate owns, do we need to file a Washington estate tax return?”

Question 4: Who reports the sale?

This one depends on how the estate is set up, so I stay in my lane. The personal representative runs the estate and the heirs receive what is left. Whether the estate, the heirs, or both report the sale can depend on who owns the house at closing and when the proceeds are distributed.

On the practical side, a personal representative in Washington with nonintervention powers can generally sell estate real property without a court order (RCW 11.68.090). That tells you who can sign the sale. It does not tell you who files what on the tax side, so get the CPA involved before closing, not after.

If you are the personal representative, my executor and personal representative guide for Washington walks through the role. If you want the tax and legal pieces laid out next to the sale steps, my legal and tax tips for inherited property in Washington State is a good place to start.

What to ask your CPA: “Who reports this sale, the estate or the heirs, and does the timing of distributions change that?”

Question 5: What will the sale and the wait cost me?

This is the question that connects the tax talk to real money in your pocket.

Real estate excise tax on the sale

Washington charges a real estate excise tax when real property is sold. The Department of Revenue’s real estate excise tax page says the seller usually pays it, and that the state uses graduated rates that rise with the selling price. Local excise tax is added on top of the state rate. The thresholds and the effective dates are listed on that page, and they have changed over time, so check it for the closing date you are working with rather than relying on a number in a blog post.

To see what it does to your bottom line, run the numbers through a seller net proceeds calculator. It is a quick way to see what is left after the excise tax, commission, and other closing costs.

Carrying costs while the estate stays open

An estate does not close the day the house sells. In my experience, it takes 6 to 12 months to close a whole estate. The estate cannot fully close until the creditor period ends, though the house can often sell sooner. Most creditors have four months from the first publication of notice, under RCW 11.40.051, and creditors who receive actual notice can have a different deadline.

While you wait, the house keeps costing money. Property taxes, insurance, utilities, lawn care, and repairs still come due. Which of those are deductible, and by whom, is a CPA question. What I can say is that a house that sits adds up, and the cleanest control is a plan with a timeline. My guide to estate cleanout and home preparation covers how to get a house ready without letting the waiting period drag on. For a day-by-day plan, see how to clean out a parent’s house before selling.

What to ask your CPA and your broker: “What will the sale cost after excise tax and closing costs, and what will every extra month of holding cost us?”

Keep the date-of-death value documented

Everything above leans on one number, and you should be able to prove it. If you inherit a house, get the value documented as close to the date of death as you can.

As general advice, not tax advice: many families order a professional appraisal that states a value as of the date of death. Ask your CPA what kind of valuation they want, and ask whether they have a preferred appraiser. Keep the report with your estate records. A screenshot of an online estimate will not do.

Online estimates can miss. On a Lakewood house near Tacoma, the estimate before we listed was about $498,000 and the house sold for $613,000. A date-of-death appraisal is the number your CPA and the IRS will care about. If an investor offer is on the table, see how I test it in sell an inherited house as-is, list it, or take an investor offer.

A hot market is not typical

A Bothell house I sold, about 40 percent over list at $1,560,000, happened during peak COVID. It was one of the biggest escalations I have seen, and it is not typical.

Before you list: three calls to make

1. Call your estate attorney. Ask questions 3 and 4, and ask what the court timeline looks like.
2. Call a CPA who handles estates. Ask questions 1, 2, 4, and 5. Bring the date of death and the purchase history if you know it.
3. Then talk to me. Once you know your timeline, I can tell you what the house will likely sell for and what it will cost to get it ready. My page on selling an inherited property in Seattle shows how I work with families.

For the legal side, including probate steps and who can sign, see my post on probate real estate in Washington State.

Frequently Asked Questions

What is a stepped-up basis on an inherited house?

It is the value the IRS generally treats you as having paid for the house. Under IRS Publication 551, inherited property generally takes a basis equal to its fair market value on the date of death, not what the original owner paid. That can reduce the gain on a sale a great deal. Your CPA confirms which valuation rule applies to your estate.

Does Washington have a capital gains tax on selling an inherited house?

Washington has no state income tax, and the state capital gains excise tax lists real estate among its exemptions. That means the state capital gains tax does not apply to the sale of the house itself. Federal rules are separate, so ask your CPA how the sale is treated on the federal side and whether anything else in the estate is covered.

Can holding an inherited house longer increase my taxes?

It can. Your basis is set at the date-of-death value and does not rise with the market afterward, so appreciation while the estate waits is measured against that frozen number. Carrying costs also keep running. Get a date-of-death appraisal on file, and ask your CPA how a loss or gain after the date of death would be treated before you decide to hold.

Who pays the real estate excise tax when an inherited house sells?

The Washington Department of Revenue says the seller usually pays it, and if the seller does not, the buyer is responsible. The state uses graduated rates based on the selling price, and local excise tax is added. Check the Department of Revenue page for the current thresholds, and use a net proceeds calculator to see the effect on what you take home.

Next step: get the numbers before you list

If you are the personal representative or an heir and you are weighing when to sell, start with a clear view of what the house is worth today. I will give you a straight answer, and I will tell you when a question belongs to your CPA or attorney. You can request a free home value estimate, or call me directly at 206-245-8813. For the full process from start to finish, see my guide to selling a house in probate in Washington.

Emily Cressey, CPREA, HomePro Associates at Keller Williams Greater Seattle

I am a real estate broker, not an attorney or CPA. This post is general information, not legal or tax advice. Confirm every tax and legal question with a qualified professional who knows your estate.