For inherited property, capital gains are calculated against the stepped-up basis and are always treated as long-term. Long-term federal rates are 0%, 15%, or 20% depending on the seller's taxable income — far lower than ordinary-income rates.
Related terms
Step-Up in Basis
A federal tax rule (IRC §1014) that resets an inherited asset's cost basis to its fair market value on the date of the original owner's death.
Probate
The court-supervised process of validating a will, paying the deceased's debts, and transferring remaining assets to heirs.
Inheritance Tax
A state-level tax paid by the heir on the value of property received from a deceased person.