Inheriting a home may feel like a gift, but it also comes with financial, tax, and emotional considerations. At Stone Bybee & Associates, our team of Las Vegas estate planning attorneys helps clients navigate the complexities of inherited property. Whether you’re keeping the house, selling it, or renting it out, understanding your obligations is essential.

Inheritance and Estate Taxes

In most cases, there’s no federal inheritance tax, and Nevada does not impose one. However, federal estate taxes may apply to very large estates. Only six states impose inheritance taxes—Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

The spouse is exempt from paying inheritance tax, and in many states, children and grandchildren are also exempt. But if you own property in another state, check that state’s inheritance rules.

Capital Gains and the Step-up-in Basis

If you decide to sell an inherited home, capital gains tax might be a concern. Typically, capital gains taxes are calculated on the difference between the purchase price and the sale price. However, inherited properties receive a step-up in basis, meaning the home is valued at its market value on the date of the decedent’s death. This drastically reduces the capital gains tax owed if you sell the house soon after inheriting it.

Capital Gains Exclusion

If you move into the inherited home and live there as a primary residence for at least two out of the next five years, the IRS allows an exclusion of up to $250,000 in capital gains ($500,000 for married couples filing jointly).

Step-up-in Basis

A step-up in basis adjusts the home’s value to its fair market value at the time of inheritance. This can significantly reduce or eliminate capital gains taxes if the home is sold. For example, if the home is sold at its stepped-up value, no taxable profit is recognized.

Handling an Inherited Mortgage

Traditional Mortgage

If the property has an outstanding mortgage, you’ll be responsible for keeping up the monthly payments. You may have the option to assume the mortgage or refinance it in your name. Read more about your options if you inherit a house with a mortgage.

Reverse Mortgage

If the deceased had a reverse mortgage, the lender will usually require the home be sold or refinanced shortly after death. Otherwise, ownership may revert to the lender.

Dealing with an Underwater Property

If the mortgage exceeds the home’s market value, a short sale may be possible. In a short sale, the lender agrees to accept less than what’s owed on the mortgage selling the property for less than the loan balance and accepting that amount to settle the debt.

Ongoing Costs and Upkeep of Inherited Property

Even a mortgage-free home carries costs including:

• Property taxes
  
• Homeowners insurance
  
• Utilities and maintenance
  
• Potential HOA fees
  
• Repairs needed for sale or occupancy
  

These expenses can add up quickly, so budgeting is key.

Your Options as an Heir of Inherited Property

1. Live in the Home

A sentimental and potentially affordable choice, especially if the home is paid off. This keeps the property in the family and may offer long-term financial stability.

2. Sell the Home

Often the simplest solution, especially if you need quick liquidity or don’t want to manage a second property.

3. Rent It Out

This can generate passive income and provide tax benefits, but being a landlord comes with legal obligations and management responsibilities.

Emotional and Family Considerations for an Inherited House

Inheriting a family home can stir up emotions—especially if multiple heirs are involved. Disagreements about whether to keep, sell, or rent the property are common. Inheriting a house can have tax, financial and emotional considerations to consider, and a lot is dependent on the size of the mortgage, the home’s value and the costs of upkeep. Read more in our article, Should You Put Your Child’s Name on the Deed to Your House?

The Las Vegas estate planning attorneys at Stone Bybee & Associates can help mediate discussions, clarify legal rights, and ensure any agreements are fair and legally binding.

Need Help with an Inherited Property in Las Vegas?

Stone Bybee & Associates is here to guide you. Our Las Vegas estate planning attorneys will walk you through your options, protect your interests, and help preserve your family legacy. Request your consultation with our office online.

Key Takeaways

• Estate and inheritance taxes are not typically an issue in Nevada, but check other state rules if applicable.
  
• A step-up in basis can minimize capital gains taxes if the home is sold.
  
• Living in the home may qualify you for a capital gains exclusion.
  
• Watch for mortgage obligations—especially if the home had a reverse mortgage.
  
• Budget for ongoing costs, even if the house is paid off.
  
• You can live in, sell, or rent the inherited home, depending on your financial goals.
• Work with a Las Vegas estate planning attorney to handle disputes, clarify responsibilities, and make smart choices.

Reference: SmartAsset (Feb. 17, 2025) What to Do When You Inherit a House