Capital gains taxes are then calculated, so you pay taxes only on appreciation that occurs after you inherit the property. Yahoo Finance’s recent article entitled, “Do I Pay Taxes Automatically If I Inherit Property?” says there are three main types of taxes that cover inheritances:
The cash you inherit is taxed through either inheritance taxes (when applicable) or estate taxes. With inheritance taxes, you must file and pay this tax.
With an estate tax, the IRS taxes the estate directly.
Therefore, it’s uncommon for an heir to owe any taxes, including income tax, on inherited cash.
The IRS does not automatically tax any other forms of property that you might inherit. However, you’ll owe capital gains taxes if you choose to sell this property.
When you inherit property, whether real estate, securities, or almost anything else, the IRS applies a stepped-up basis to that asset. This means that for tax purposes, the base price of the asset is reset to its value on the day that you inherited it. If you inherit property and immediately sell it, you’d owe no taxes on those assets.
Two prices are involved in establishing a capital gain tax: the sale price (how much you sold the asset for) and the original cost basis (how much you bought it for).
Reference: Yahoo Finance (Aug. 27, 2023) “Do I Pay Taxes Automatically If I Inherit Property?”