Inherited real estate generally does not trigger these taxes: estate, gift, capital gains or income. That’s because, under tax law, the starting value of the house is generally the property’s fair market value at the time of the homeowner’s death. This is known as the “step up in basis” and means that you may have a capital gain or loss if you sell the property after you inherit it.
However, if you choose to use the home as your primary residence for two of the five years preceding the sale of the home, you’ll probably qualify for the primary residence tax exclusion of up to $250,000 if single ($500,000 if married filing jointly) in capital gains.
Be sure to change the ownership records with your local government, which requires providing copies of the decedent’s will and death certificate and drafting and filing a new deed.