Selling an Inherited House in Whatcom County? Here's What "Stepped-Up Basis" Actually Means for Your Taxes
I get some version of this question at least once a month from new clients.
"If I sell my mom's house, how much am I going to owe the IRS?"
Usually there's a little dread behind it. People remember that mom bought the house in 1978 for $34,000, and it's worth $650,000 today, and they do the math on that gap and start sweating.
Here's the good news, right up front...
In almost every case, you owe a lot less than you think. Sometimes nothing at all.
The reason is a piece of tax law called stepped-up basis, and after nearly 20 years in real estate and more than 1,000 homes sold — a good chunk of them probate and inherited property sales right here in Whatcom County — I can tell you it's the single most misunderstood, most anxiety-producing, and most good news topic I talk through with heirs.
Let's clear it up.
A quick disclaimer before we start: I'm a real estate broker, not a CPA or tax attorney. Everything below is general information to help you ask the right questions. Your actual tax bill depends on your specific numbers, so please run them by a tax professional before you sell. I can also point you toward a couple of Bellingham CPAs who work with estates regularly, if you need one.
What "Basis" Even Means
Every piece of property has a "basis" for tax purposes — basically, the number the IRS uses as your starting point when it calculates whether you made a profit on a sale.
If you buy a house for $300,000, your basis is $300,000. Sell it for $450,000, and you've got a $150,000 gain that capital gains tax applies to.
Simple enough when you bought the place yourself.
It gets more interesting when you inherit it.
The Step-Up: Why Mom's 1978 Purchase Price Doesn't Matter
Under federal tax law, when you inherit real estate, your basis isn't what the original owner paid for it decades ago.
Your basis resets — "steps up" — to the fair market value of the house on the date the owner passed away.
So if your mom bought the house for $34,000 in 1978, and it was worth $640,000 the day she died, your basis is $640,000. Not $34,000.
Sell the house for $650,000 a few months later, and you're only looking at a taxable gain of $10,000 — not $616,000.
That decades of appreciation that happened during her lifetime? It disappears for tax purposes. Wiped clean.
This is why I tell people: don't panic about the sale price gap before you know your actual basis. They're two completely different numbers.
Married Couples in Washington Get an Extra Bonus
Washington is a community property state, and that matters here.
If your parents owned the house together as community property and one of them passed away, both halves of the house — not just the deceased spouse's half — typically get the step-up to current fair market value. Some states only step up the deceased person's share. Washington heirs often get the full reset.
That's one more reason to talk to a probate-savvy CPA before assuming you know your number. The rules shift depending on how title was held — community property, joint tenancy, tenancy in common — and each one produces a different tax outcome.
Washington Doesn't Tax the Sale of Real Estate at All
Here's a detail that surprises almost every out-of-state heir I work with, and plenty of local ones too.
Washington does have a state capital gains excise tax — 7% on long-term gains above an inflation-adjusted deduction, 9.9% above $1 million. It gets a lot of press.
But real estate sales are entirely exempt from it.
If you're selling an inherited house, that state tax simply doesn't apply to you. The only capital gains tax question is the federal one, calculated off your stepped-up basis.
What About Federal Estate Tax?
Different tax, different question, and for most families it's a non-issue.
The federal estate tax exemption for 2026 is $15 million per person. Washington's own state estate tax exemption is $3,000,000 for deaths on or after July 1, 2026.
Unless the whole estate — house, accounts, everything — is worth more than that, there's no estate tax return to file and no estate tax owed. The house being worth $650,000 doesn't trigger anything on its own.
When Does the Federal Capital Gains Tax Actually Show Up?
Only on the gain between your stepped-up basis and your eventual sale price — and only if that gain is meaningful.
A few things worth knowing:
You automatically get long-term rates. Even if you sell the house the week after you inherit it, the IRS treats your gain as long-term. You don't have to hold it for a year to qualify for the lower rate.
The rates themselves are moderate. For 2026, most people land in the 0% or 15% federal long-term capital gains bracket depending on their total income. The top rate is 20%, and it only applies at very high income levels. There's also a 3.8% net investment income tax that can apply above roughly $200,000 (single) or $250,000 (married) in income — one more reason your CPA needs your full financial picture, not just the house.
Selling sooner rather than later usually protects the step-up. The longer you hold the house after inheriting it, the more the market can move — and any additional appreciation after the date of death is taxable gain, on top of what you already inherited tax-free. If three heirs sit on a house for two years while they sort out what to do with it, that appreciation adds up.
The Real-World Version of This
I had a family last year — three adult kids, house in the Cordata neighborhood, mom had lived there since the Carter administration. Their first instinct was to brace for a massive tax bill.
Once we pulled a professional appraisal for date-of-death value and they talked to their CPA, the number came back tiny. Their actual taxable gain was under $15,000 total, split three ways. Practically nothing.
That's the pattern I see over and over. The scary math people do in their head — sale price minus what grandpa paid in 1965 — almost never matches the math the IRS actually uses.
What To Do Before You List
Get a date-of-death appraisal or a solid retrospective comparative market analysis. This is what establishes your stepped-up basis. Don't skip it or guess at it.
Loop in a CPA early, ideally before you sign a listing agreement, not after the sale closes.
Know how title was held — community property, joint tenancy, tenancy in common — since it changes the math.
Don't let the house sit indefinitely waiting for a "better market." The tax clock on additional gain starts ticking the day you inherit.
I'll help with the appraisal, the comps, and the sale side of things. Your CPA handles the filing. Between the two of us, most families find the process is a lot less painful than they feared.
If you're sitting on an inherited house in Bellingham or anywhere in Whatcom County and you're not sure where to start, reach out. No pressure, no sales pitch — just a conversation about your specific situation.
This post is intended for general informational purposes only and is not legal, tax, or accounting advice. Consult a qualified CPA or tax attorney regarding your specific situation before making decisions about an inherited property.
