Questions sellers ask Is it better to sell my parents' house now, or to inherit it?

Why the two answers differ so much

One rule does nearly all the work. Property that passes at death has its cost basis reset to the fair market value on that day — the IRS puts it plainly: the basis of inherited property is generally “the FMV of the property at the date of the individual’s death.”¹ Decades of appreciation simply stop being taxable.

Sold during a lifetime, nothing resets. The gain is measured from what was paid for it in 1978.

On a house in a market that has done what Palo Alto has done, that single difference is the largest number in the whole plan.

The same house, both ways

Bought in 1978 for $180,000. Worth $4,000,000 today. Parents married, and it has been their principal residence throughout.

Sold in their lifetime

Federal long-term capital gains at the top rate of 20%, plus the 3.8% net investment income tax, is 23.8% — about $790,000. California does not have a separate capital gains rate; it taxes the gain as ordinary income, and at the top of the scale that is roughly another $430,000.³

Around $1.2 million, combined.

Inherited, then sold

The basis becomes $4,000,000. A sale at about that figure produces a gain of approximately nothing, and the tax is approximately nothing.

The gap on this one house is about $1.2 million.

Before going further, find your own gap

That number is entirely a function of the distance between what was paid and what it is worth. Two houses on the same street can give completely different answers.

• Add to the $180,000 every capital improvement that can be documented — a kitchen, an addition, a new roof. Those raise the basis and shrink the gain, and on a house owned for decades they are often substantial and often forgotten.
• Selling costs come off the gain too.
• If the parents are not married, or one has died, the exclusion is $250,000 rather than $500,000.²
• If the house is not their principal residence — a rental, a second home — there is no exclusion at all, and the case for waiting is stronger still.

If the gap turns out to be small, most of this page stops mattering and the decision is about the house and the family instead. That is a good outcome: you have ruled out the expensive mistake in an afternoon.

The reasons not to wait, which are real

A page that stops at the tax number is giving bad advice dressed as arithmetic.

A parent who needs the money. Care is expensive, and the house is usually where the money is. A tax saving that depends on an elderly person staying in a house they can no longer manage is not a saving.

A parent who can no longer sign. This is the risk nobody prices. Selling during a lifetime requires capacity to sign. If that goes, the sale needs a trustee with authority, a power of attorney that actually covers it, or a conservatorship — which is slow, public and expensive. The window for a lifetime sale can close without anyone noticing it was open.

A house standing empty. Under Proposition 19, an heir who does not move in faces a reassessment to market value: on this house, roughly $48,000 a year in property tax alone, before insurance and maintenance, and an empty house is often not covered by the policy that covered it while it was occupied. Years of holding can eat a meaningful share of the tax saving. The Proposition 19 arithmetic is worked out here.

A house getting worse. Four or five more years of deferred maintenance on a house that already needs work is not a neutral wait. Preparation that costs $150,000 today can cost meaningfully more later, and a house that has slipped further sells further below its potential.

The reset is to the value on that day, not to today’s value. It can be lower. A step-up is not a guarantee, it is a measurement.

The rule that saves the exclusion when a parent moves into care

Worth knowing because it is the exact situation many families are in, and it is not widely known.

The $250,000 / $500,000 exclusion normally requires that the home was the seller’s main home for two of the five years before the sale. But if the owner becomes physically or mentally unable to care for themselves, and used the residence as their main home for at least 12 months in the five years before the sale, then time spent living in a licensed care facility counts toward the two-year requirement.²

So a parent who moved into a licensed facility does not automatically lose the exclusion on the family home. Families frequently assume they have, and sell — or fail to sell — on that assumption.

What this looks like as a plan rather than a decision

The useful version of this question is almost never “sell now or wait.” It is:

1. Work out the gap. Basis, improvements, value. An hour with the old paperwork.
2. Ask what the parents actually need, financially and practically, over the next few years. This usually settles it, and it should.
3. Get the authority in order now, whichever way it goes — a trust, a power of attorney wide enough to sell, a successor trustee who knows they are one. This is the step that protects every other option, and it is free to take early and impossible to take late.
4. Find out what the house would actually sell for, and what it would take. Not an estimate — what a buyer would pay for it in its current state, and what it would pay to prepare it. That number changes the arithmetic above more than people expect, and it is the part Maggie can give you.
5. Then take all of it to a CPA and an estate attorney together. The tax question and the legal question are the same question, and answering one without the other is how families end up on the wrong side of a seven-figure number.

Step four does not commit you to anything and does not require a decision to have been made. It is frequently the step that lets the family stop guessing.

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Sources. ¹ IRS Publication 551, Basis of Assets · ² IRS Publication 523, Selling Your Home · ³ California Franchise Tax Board

Figures current at September 27, 2026, rounded, and illustrative of one set of assumptions rather than a calculation of anyone’s liability. Rates and brackets change. Maggie is a licensed REALTOR®, not an attorney, an accountant or a tax adviser.