Taxes on Inherited Property in Texas: Homes, Stocks and IRAs
Inheriting property usually doesn't mean an immediate tax bill. But what you do next, such as selling the house or withdrawing from an IRA, can be taxed. Here's how inherited property is taxed in Texas.
By the Enrolled Agents and CPAs at A&W Tax Services · Updated
No Texas inheritance or estate tax
Texas has no inheritance tax and no state estate tax. The federal estate tax applies only to very large estates, worth more than $13 million per person, and is paid by the estate, not the heirs. Inheritances themselves aren't income, so you don't report them on your return.
Stepped-up basis
When you inherit a house, stocks or other assets, your tax basis is usually the fair market value on the date of death, not what the original owner paid. If you sell soon afterward for about that value, there's little or no taxable gain. Get a date-of-death appraisal for real estate and keep brokerage statements showing values on that date.
The Texas community property advantage
In community property states like Texas, when one spouse dies, both halves of community property generally get a stepped-up basis, not just the half that belonged to the spouse who died. A surviving spouse who sells the family home or investments can owe far less tax than in most other states.
Inherited retirement accounts
- A surviving spouse can usually roll an inherited IRA into their own IRA
- Most other beneficiaries must empty an inherited IRA or 401(k) within 10 years of the owner's death, and some must also take yearly distributions
- Withdrawals from a traditional IRA or 401(k) are taxed as ordinary income, so spreading them out can keep you in a lower bracket
- Qualified withdrawals from an inherited Roth IRA are generally tax-free
Selling an inherited home
Report the sale on your return. Your gain or loss is the sale price minus selling costs minus the stepped-up basis. If you rent the home out before selling, it becomes a rental property with its own rules. A loss on an inherited home you never used personally may be deductible.