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Inherited Property: Tax Basis (2025 IRS Guide)

This guide covers “Inherited Property” within tax basis. 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 551 (12/2025), Basis of Assets, 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

There are many times when you can't use cost as basis. In these cases, the FMV or the adjusted basis of property may be used. Adjusted basis is discussed earlier.

FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Sales of similar property on or about the same date may be helpful in figuring the property's FMV.

Inherited Property

When an estate is required to file a federal estate tax return (Form 706), the estate beneficiaries generally will receive a Schedule A (Form 8971) from the executor of the estate reporting the estate tax value of property distributed to them. Certain beneficiaries are required to use this value as the initial basis in the property received from the estate. See section 1.1014-10 of the regulations for more information on the application of the consistent basis requirement to inherited property. For information on the circumstances under which an executor is required to furnish a Schedule A to a beneficiary, see the instructions for Form 8971 and the related Schedule A.

Generally, the basis of property inherited from a decedent is one of the following.

  1. The FMV of the property at the date of the individual's death.

  2. The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For information on the alternate valuation date, see the Instructions for Form 706.

  3. The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.

  4. The decedent's adjusted basis in land to the extent of the portion of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

If you did not receive a Schedule A reporting the estate tax value of property you inherited, your basis in the property can be determined using the appraised value at the date of death for state inheritance or transmission tax purposes.

For more information, see the Instructions for Form 706.

For a distribution of inherited property received by a trust, see Property Received from a Trust, later.

Appreciated property.

The above rule doesn't apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Your basis in this property is the same as the decedent's adjusted basis in the property immediately before their death, rather than its FMV. Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis.

Community Property

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.

For example, you and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community interest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000.

For more information on community property, see Pub. 555, Community Property.

Property Held by Surviving Tenant

The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety.

Example.

John and Jim owned, as joint tenants with right of survivorship, business property purchased for $30,000. John furnished two-thirds of the purchase price and Jim furnished one-third. Depreciation deductions allowed before John's death were $12,000. Under local law, each had a half interest in the income from the property. At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includible in John's estate. Jim’s basis in the property at the date of John's death is figured as follows:

Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000
Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000
Minus: ½ of $12,000 depreciation before John's death 6,000
Jim's basis at the date of John's death $44,000
If Jim hadn't contributed any part of the purchase price, Jim’s basis at the date of John's death would be $54,000. This is figured by subtracting from the $60,000 FMV the $6,000 depreciation allocated to Jim's half interest before the date of death.

If under local law Jim had no interest in the income from the property and contributed no part of the purchase price, Jim’s basis at John's death would be $60,000, the FMV of the property.

Qualified Joint Interest

Include one-half of the value of a qualified joint interest in the decedent's gross estate. It doesn't matter how much each spouse contributed to the purchase price. Also, it doesn't matter which spouse dies first.

A qualified joint interest is any interest in property held by married individuals as either of the following.

  • Tenants by the entirety.

  • Joint tenants with right of survivorship if the married couple are the only joint tenants.

Basis.

As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Decrease the cost by any deductions allowed to you for depreciation and depletion. Increase the cost by your basis in the half you inherited.

Farm or Closely Held Business

Under certain conditions, when a person dies, the executor or personal representative of the decedent's estate can choose to value the qualified real property based on its use as a farm or in a closely held business instead of its FMV. If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate.

Special-use valuation.

If you're a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Figure all FMVs without regard to the special-use valuation.

You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who isn't a member of your family or the property stops being used as a farm or in a closely held business.

To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax.

You make the election by filing with Form 706-A a statement that does all of the following.

  • Contains your name, address, and taxpayer identification number and those of the estate.

  • Identifies the election as an election under section 1016(c) of the Internal Revenue Code.

  • Specifies the property for which the election is made.

  • Provides any additional information required by the Instructions for Form 706-A.

For more information, see the Instructions for Form 706 and the Instructions for Form 706-A.

Property Received from a Trust

A grantor type trust is a legal trust under applicable state law that isn't recognized as a separate taxable entity for income tax purposes because the grantor or other substantial owners have not relinquished complete dominion and control over the trust. See the instructions to Form 1041, U.S. Income Tax Return for Estates and Trusts, for more information. If property is distributed to you from a grantor trust, the distribution is considered to be a transfer from the grantor or other owner of the trust. If you are the grantor or other owner of the grantor trust, then the distribution generally has no effect on the basis of the property. If you are not the grantor or other owner of the grantor trust (for example, if you are a beneficiary), then the distribution from the trust is generally treated as a gift to you from the grantor or other owner. See Property Received as a Gift, earlier.

If property is distributed to you from a non-grantor trust you will generally take a carryover basis in the property under IRC section 643. Your basis in the distributed property will generally be the same as the trust's adjusted basis immediately before the distribution, as further adjusted for any gain or loss recognized by the trust on the distribution. For a trust's basis in property gifted to the trust, see Property Received as a Gift, earlier. For a trust's basis in inherited property included in the trust settlor's gross estate, see Inherited Property, earlier.

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

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.

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