Inheritance Tax Rules: Why Basis Matters More Than the Rate

Do you owe tax when a parent leaves you money?

You might be thinking, “Ralph, isn’t that what the inheritance tax is for?” Not really. For most families, the inheritance tax is the wrong thing to worry about. Basis is the right one.

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The Federal Line Is $15 Million

The federal estate tax only applies to estates over $15 million in 2026. Most families are nowhere close.

Some states add their own rules. Tennessee, for example, no longer has an inheritance tax for anyone who died after 2015. Check your own state before you assume anything.

Joint Accounts Skip the Estate

If you were a joint owner on your parent’s savings account, that money was already yours when they passed. It generally does not count as part of the estate, and there is no tax on it.

Whether your parent wanted you to share it with a sibling is a family conversation, not a tax one.

Basis Is the Real Catch

When you inherit stock or a house, your basis is generally its value on the date of death, not what your parent paid. Sell soon after and you owe little or no capital gains tax.

Say your mom bought a house for $100,000 and it is worth $500,000 when she passes. Inherit it, and your basis is $500,000.

Now flip it. If mom added you to the deed years ago, that counts as a gift, and you generally keep her original basis. Sell at $500,000 and you are looking at a $400,000 gain.

That is why I tell people to run the numbers before they add their kids to a house or an account.

Get the Value in Writing

Right after a parent passes, get the date-of-death value on paper. Ask the broker to value every holding as of that day. For a house, get a market analysis from a realtor, or two.

It is hard to rebuild later, and it keeps families out of arguments.

Inherited IRAs Play by Different Rules

Retirement accounts do not get a step up in basis. Most heirs have to empty an inherited IRA within 10 years, and what comes out is taxed as ordinary income. If your parent was already taking required distributions, you generally have to keep taking them each year too.

Ask the broker to withhold enough. If the extra income pushes you into a higher bracket, you want to find out before April.

Three Things to Do First

1. Get Date-of-Death Values in Writing
   Broker values for every investment. A realtor’s analysis for a house.
2. List the Named Beneficiaries
   Find out who is named on each account before anything moves.
3. Call Before You Sell or Withdraw
   Talk to your tax professional first. A phone call costs far less than a surprise in April.

Start With the Paper, Not the Panic

You are grieving. You do not have to figure it all out this week.

Get the values.
Find the beneficiaries.
Make the call.

This is general information, not tax advice for your situation. Talk to your tax advisor before you act.