Inherited Texas land: capital gains and the stepped-up basis

Families often worry about taxes more than any other part of selling inherited land. The fear is understandable. A grandparent bought acreage for a few thousand dollars in 1965 and it is worth a lot more now. Does that mean a giant tax bill? Usually not, because of how the tax code treats inheritances. This article explains the main rules in plain language.

It is general information, not tax or legal advice. Tax law changes, and your facts matter. Please confirm everything with a CPA or tax attorney.

Does Texas tax inherited land?

Texas has no state income tax and no state inheritance or estate tax. So a Texas heir does not owe a state tax on receiving or selling inherited land. Property taxes continue on the land, and other federal rules can apply.

What is a stepped-up basis?

Basis is the starting number the tax system uses to measure your gain when you sell. If you buy land for $50,000 and sell it for $200,000, your gain is $150,000. Your basis was $50,000.

When land passes at death, federal law generally resets the basis to the property’s fair market value on the date of death. The older owner’s low purchase price drops out of the picture. If the land was worth $200,000 when the owner died and you sell it for $205,000 a year later, your taxable gain is about $5,000, not $155,000.

This step-up is one of the biggest benefits in the tax code for inherited property. It usually applies to land owned by the decedent at death, with some exceptions.

How is the date-of-death value determined?

Fair market value is what a willing buyer would pay a willing seller. For land, the best evidence is usually a qualified appraisal as of the date of death. Estates that file a federal estate tax return report values on it. Smaller estates often do not need to file, but an appraisal is still wise, because it establishes your basis if you sell later.

When does capital gain still apply?

A sale after inheriting can still produce gain or loss. If you sell for more than the stepped-up basis, the difference is a capital gain. Inherited property is generally treated as long-term, regardless of how long you held it after death. A sale below the stepped-up basis can produce a loss, which may be deductible in some cases.

Gain may also come from:

• Appreciation after death. If the land rises in value while you own it, the extra is taxable.
• Improvements you made. Costs you add to basis reduce gain.
• Selling at a high price. A sale far above date-of-death value creates gain.
• Depreciation recapture. If the owner took depreciation on improvements, rules apply. For inherited property the basis step-up usually resets this.

What about jointly owned land, trusts and gifts?

Different ownership forms get different treatment.

• Joint ownership between spouses. In some cases, only part of the basis steps up at the first death, with Texas community property rules offering a double step-up for certain assets. Ask a CPA how it applies.
• Trusts. A revocable trust generally receives a step-up at the owner’s death. An irrevocable trust may not, depending on how it is structured.
• Gifts during life. Gifted property usually keeps the donor’s original basis, which can lead to much more gain. That is why many families keep land until death.
• Heirs property. Each heir receives a stepped-up basis in their share.

What other taxes can touch an inherited land sale?

Property taxes. These continue, and delinquent balances can grow. They are paid at closing from the proceeds if needed.

Rollback taxes. If the land had an agricultural valuation and the use changes, rollback tax can apply. See our article on Texas ag exemption and rollback taxes.

Federal estate tax. This applies only to very large estates. Most families will not owe it.

Net investment income tax. Some higher-income sellers can owe an extra tax on gain. A CPA can check.

Income from the land. Rent, lease income, royalties and timber income are taxed differently from sale gain.

What does the stepped-up basis look like in numbers?

This example is invented, to show the arithmetic. It is not tax advice.

A grandparent bought 60 acres in 1970 for $30,000 and died in 2024. A retrospective appraisal puts the land’s value at $480,000 on the date of death. The heirs sell in 2026 for $500,000.

The step-up cuts the taxable gain from $470,000 to $20,000. The heirs still owe tax on the $20,000 increase if it applies, and other items such as selling costs can reduce it. This is why many families are surprised by how little tax they owe on inherited land that sells soon after a death. The IRS publishes general guidance on basis at irs.gov, and a CPA can apply it to your situation.

What should you do before you sell?

1. Gather records. Death certificate, will or heirship papers, estate inventory and any appraisals.
2. Get a date-of-death appraisal if you do not have one. It pays for itself if your gain is questioned.
3. Ask a CPA about your basis and gain. Do this before you sign a contract.
4. Plan timing. A sale soon after death at a similar value often means little gain.
5. Keep copies. Hold onto the closing statement and appraisal for your tax return.

How do you plan if the land is worth much more now than at death?

If the land has appreciated since the date of death, gain applies to the increase. Some owners spread the gain by using an installment sale, which defers part of the tax over years. Others consider like-kind exchange options, though those apply only in certain situations and have strict rules. A CPA can explain which fit your case.

What do three more examples show?

These are invented scenarios to show the arithmetic. They are not tax advice.

Suppose the land sells a little above date-of-death value. The appraisal says $300,000 on the date of death. The heirs sell for $330,000 and pay $20,000 in selling costs. Gain is $330,000 minus $300,000 minus $20,000, which is $10,000.

Suppose the heirs improve the land first. Using the same land, they spend $12,000 on a new road that adds to value. Their basis becomes $300,000 plus $12,000, or $312,000. They sell for $360,000 and pay $20,000 in costs. Gain is $360,000 minus $312,000 minus $20,000, or $28,000. Without the road, the gain would have been $360,000 minus $300,000 minus $20,000, or $40,000. Ask a CPA which costs count as improvements and which are just maintenance.

Suppose the land sells for less than the stepped-up value. The land was $300,000 at death, but the market softened and it sells for $270,000 with $15,000 of costs. The net is $255,000, which is $45,000 below basis. That may be a loss. Whether you can deduct it depends on how the land was held, so ask a CPA.

How is the basis split among several heirs?

Heirs usually share basis in proportion to what they inherit. Suppose three siblings each inherit one third of land valued at $450,000 at death. Each has a basis of $150,000. They sell for $465,000, so each receives $155,000 before costs. Each reports gain of about $5,000 before costs, because $155,000 minus $150,000 is $5,000.

If the heirs do not agree on a sale, one cannot always force the others to sell without going to court. See selling heirs property for how shared ownership works and why a single buyer for the whole tract can help.

Total gain is the same either way, since three times $5,000 equals $15,000.

How does the step-up differ by situation?

Land inherited outright from a parent. The common case. Basis usually resets to date-of-death value.

Raw acreage held for decades. The gain you avoid can be very large, so documenting the value matters most here.

Ag land. The basis step-up does not remove rollback tax. Those are separate. See rollback taxes.

Lots and small tracts. Value may rest on nearby sales, and an appraiser can use those comparisons.

Land that passed outside probate. A transfer on death or trust can still receive a step-up in many cases, but the rules are particular. Ask an attorney or CPA.

Land that passed by gift. This usually does not step up. The gift keeps the donor’s basis.

Land with minerals. Minerals can have their own value and basis. Read selling or keeping mineral rights.

What documents prove your basis?

Collect these before you meet with a CPA.

• Death certificate.
• Will, probate order or affidavit of heirship. See affidavit of heirship explained.
• Date-of-death appraisal.
• Estate inventory, if one was filed.
• Deed showing how the land passed to you.
• Receipts for improvements you paid for after inheriting.
• Property tax statements and valuation notices.
• The closing statement from your sale.

What is the timeline of a typical sale and tax filing?

What mistakes should you avoid?

1. Selling before you have an appraisal. If the IRS asks, you will want proof of value.
2. Assuming no tax at all. A step-up reduces gain, but gain above the stepped-up value is taxable.
3. Forgetting selling costs. Commissions, title fees and legal costs can reduce gain.
4. Mixing up gift and inheritance. A gift before death generally does not step up.
5. Not splitting records among heirs. Each heir needs their own file.
6. Confusing property tax with income tax. Property taxes and rollback taxes are separate topics.
7. Taking tax advice from a buyer. Ask a CPA. We cannot give tax advice.

What should you ask a CPA or attorney?

• What is my basis, and how do I prove it?
• Did the land receive a full step-up or only a partial one?
• Do Texas community property rules help in my case?
• What costs of sale reduce my gain?
• Is there any gain, and when is the tax due?
• Do I need an appraisal now, or can I use an earlier one?
• How should the heirs split gain and proceeds?
• Does an installment sale or an exchange fit my situation?

What if you cannot find the date-of-death value?

Sometimes the death was years ago and no appraisal exists. Do not panic. A licensed appraiser can often work backward and estimate value as of that date using sales from that time. Old tax appraisal notices, an estate inventory or an insurance record may also help support the number. Your CPA can tell you which evidence carries weight. The earlier you gather these, the easier it is, because records and memories fade.

What about timing and market changes?

If the land sells soon after death at about the appraised value, gain tends to be small. If you wait, the land may rise or fall. A rise adds taxable gain. A fall can make a loss. Taxes should not be the only reason to sell or hold, but they belong in the decision. Holding land also means carrying property tax, insurance and upkeep. Weigh those costs against your sale options, including owner financing vs a cash offer.

If you do sell on installments, read taxes on an owner-financed land sale. For the full process, see selling inherited land in Texas and how our process works.

We are a direct buyer of Texas land. We buy for cash, and we can also buy on owner-financed or other creative terms when a deal calls for it. A written offer and a closing statement give your CPA concrete numbers. Contact us when you are ready, or read the FAQ first.

By the Sell My Texas Estate team · Updated October 2026. General information, not legal, tax or financial advice. Talk with a licensed Texas attorney or CPA about your situation.