Basis of Inherited Property: Taxes After a Death (2025 IRS Guide)

This guide covers “Basis of Inherited Property” within taxes after a death. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 559 (2025), Survivors, Executors, and Administrators, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Property received as a gift, bequest, or inheritance isn't included in your income. However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you. The income from property donated to a trust that is paid, credited, or distributed to you is taxable income to you. If the gift, bequest, or inheritance is the income from property, that income is taxable to you.

If you receive property from a decedent's estate in satisfaction of your right to the income of the estate, it is treated as a bequest or inheritance of income from property. See Distributions to Beneficiaries, later.

Basis of Inherited Property

The basis of property inherited from a decedent is generally one of the following.

• The FMV of the property on the date of the individual's death.

• The FMV on the alternate valuation date (discussed in the Instructions for Form 706) if elected by the personal representative.

• The value under the special-use valuation method for real property used in farming or other closely held business (see Special-use valuation, later), if elected by the personal representative.

• The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement (discussed in the Instructions for Form 706).

Exception for appreciated property.

If you or your spouse gave appreciated property to an individual during the 1-year period ending on the date of that individual's death and you (or your spouse) later acquired the same property from the decedent, your basis in the property is the same as the decedent's adjusted basis immediately before death.

Appreciated property.

Appreciated property is property that had an FMV greater than its adjusted basis on the day it was transferred to the decedent.

Special-use valuation.

If you are a qualified heir and you receive a farm or other closely held business real property from the estate for which the personal representative elected special-use valuation, the property is valued on the basis of its actual use rather than its FMV.

If you are a qualified heir and you buy special-use valuation property from the estate, your basis is equal to the estate's basis (determined under the special-use valuation method) immediately before your purchase plus any gain recognized by the estate.

You are a qualified heir if you are an ancestor (parent, grandparent, etc.), the spouse, or a lineal descendant (child, grandchild, etc.) of the decedent, a lineal descendant of the decedent's parent or spouse, or the spouse of any of these lineal descendants.

For more information on special-use valuation, see the Instructions for Form 706.

Increased basis for special-use valuation property.

Under certain conditions, some or all of the estate tax benefits obtained by using the special-use valuation will be subject to recapture. Generally, an additional estate tax must be paid by the qualified heir if the property is disposed of, or is no longer used for a qualifying purpose within 10 years of the decedent's death.

If you must pay any additional estate (recapture) tax, you can elect to increase your basis in the special-use valuation property to its FMV on the date of the decedent's death (or on the alternate valuation date, if it was elected by the personal representative). If you elect to increase your basis, you must pay interest on the recapture tax for the period beginning 9 months after the decedent's death until the date you pay the recapture tax.

For more information on the recapture tax, see the Instructions for Form 706-A, United States Additional Estate Tax Return.

S corporation stock.

The basis of inherited S corporation stock must be reduced if there is income in respect of a decedent attributable to that stock.

Joint interest.

Figure the surviving tenant's new basis of jointly owned property (joint tenancy or tenancy by the entirety) by adding the surviving tenant's original basis in the property to the value of the part of the property included in the decedent's estate, discussed earlier. Subtract from the sum any deductions for wear and tear, such as depreciation or depletion, allowed to the surviving tenant on that property.

Example.

F. Maple and sibling, A. Maple, owned, as joint tenants with right of survivorship, rental property they purchased for $60,000. A. Maple paid $15,000 of the purchase price and F. Maple paid $45,000. Under local law, each had a half interest in the income from the property. When F. Maple died, the FMV of the property was $100,000. Depreciation deductions allowed before F. Maple's death were $20,000. A. Maple's basis in the property is $80,000, figured as follows:

Qualified joint interest.

One-half of the value of property owned by a decedent and spouse as tenants by the entirety, or as joint tenants with right of survivorship if the decedent and spouse are the only joint tenants, is included in the decedent's gross estate. This is true regardless of how much each contributed toward the purchase price.

Figure the basis for a surviving spouse by adding one-half of the property's cost basis to the value included in the gross estate. Subtract from this sum any deductions for wear and tear, such as depreciation or depletion, allowed on that property to the surviving spouse.

Example.

D. Gilbert and J. Gilbert owned, as tenants by the entirety, rental property they purchased for $60,000. D. Gilbert paid $15,000 of the purchase price and J. Gilbert paid $45,000. Under local law, each had a half interest in the income from the property. When J. Gilbert died, the FMV of the property was $100,000. Depreciation deductions allowed before J. Gilbert's death were $20,000. D. Gilbert’s basis in the property is $70,000, figured as follows:

See Pub. 551, Basis of Assets, for more information on basis. If the decedent and their spouse lived in a community property state, see the discussion in that publication about figuring the basis of community property after a spouse's death.

Depreciation.

If a beneficiary can depreciate inherited property, the Modified Accelerated Cost Recovery System (MACRS) must be used to determine depreciation.

For joint interests and qualified joint interests, use the following computations to figure depreciation.

• The first computation is for the original basis in the property.

• The second computation is for the inherited part of the property.

Continue depreciating the original basis under the same method used in previous years. Depreciate the inherited part using MACRS.

MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). For more information on MACRS, see Pub. 946, How To Depreciate Property.

Valuation misstatements.

If the value or adjusted basis of any property claimed on an income tax return is 150% or more of the amount determined to be the correct amount, there is a substantial valuation misstatement. If the value or adjusted basis is 200% or more of the amount determined to be the correct amount, there is a gross valuation misstatement.

Understatements.

A substantial estate or gift tax valuation misstatement occurs when the value of property reported is 65% or less of the actual value of the property. A gross valuation misstatement occurs if any property on a return is valued at 40% or less of the value determined to be correct.

Penalty.

If a misstatement results in an underpayment of tax of more than $5,000, an addition to tax of 20% of the underpayment can apply. The penalty increases to 40% if the value or adjusted basis reported is a gross valuation misstatement.

The IRS may waive all or part of the 20% addition to tax (for substantial valuation overstatement) if the following apply.

• The claimed value of the property was based on a qualified appraisal made by a qualified appraiser.

• In addition to obtaining such appraisal, the taxpayer made a good faith investigation of the value of the contributed property.

No waiver is available for the 40% addition to tax (for gross valuation overstatement).

For transitional guidance on the definitions of “qualified appraisal” and “qualified appraiser,” see Notice 2006-96, 2006-46 I.R.B. 902, available at IRS.gov/irb/2006-46_IRB/ar13.html.

The definitions apply to appraisals prepared for the following.

• Donated property for which a deduction of more than $5,000 is claimed.

• Returns filed after August 17, 2006.

Holding period.

If you sell or dispose of inherited property that is a capital asset, the gain or loss is considered long term, regardless of how long you held the property.

Property distributed in kind.

Your basis in property distributed in kind by a decedent's estate is the same as the estate's basis immediately before the distribution plus any gain, or minus any loss, recognized by the estate. Property is distributed in kind if it satisfies your right to receive another property or amount, such as the income of the estate or a specific dollar amount. Property distributed in kind generally includes any noncash property you receive from the estate other than the following.

• A specific bequest (unless it must be distributed in more than three installments).

• Real property, the title to which passes directly to you under local law.

For information on an estate's recognized gain or loss on distributions in kind, see Income To Include under Income Tax Return of an Estate—Form 1041, later.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 559 (2025), Survivors, Executors, and Administrators: Other Tax Information — Gifts, Insurance, and Inheritances — Basis of Inherited Property — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.