Capital Gains on Inherited Property in Florida: What You Actually Owe

Your father paid $80,000 for his Sarasota home in 1992. It's worth $420,000 now. He passed away last month, and your brother is pushing to sell it immediately. Your first question: do you owe capital gains tax on $340,000 of appreciation?

The answer — in almost every Florida inheritance scenario — is no. But only if the executor does one specific thing correctly within weeks of the death. Skip it, and the IRS can come back years later with a very large bill.

The Step-Up in Basis: How Inherited Property Escapes Capital Gains

Under IRC § 1014, the tax basis of any inherited asset is automatically reset to its fair market value on the date of death. This is the "step-up in basis" — and it is the single most powerful tax benefit available to Florida heirs.

Here is what it means in practice. If the decedent bought a house for $80,000 in 1992 and it was worth $420,000 on the day they died, the heir's cost basis is $420,000 — not $80,000. If the heir sells the house six months later for $425,000, the taxable capital gain is only $5,000, not $345,000.

Decades of appreciation effectively vanish from the IRS's perspective the moment the owner dies.

This applies to all inherited capital assets, not just real estate. Stocks, bonds, business interests, and investment accounts all receive the same reset. A brokerage account holding shares purchased in the 1990s at $10 per share, now trading at $200, carries a stepped-up basis of $200 per share the day the owner dies.

The Critical Step: Documenting the Date-of-Death Value

The step-up is not automatic on paper — it has to be documented. This is where many Florida executors make an expensive mistake.

For real estate, the executor must obtain a formal, certified appraisal from a licensed Florida appraiser, with the valuation date set to the exact date of death. An appraisal performed six months later reflecting a different market value does not satisfy IRS requirements. The window to establish clean documentation is narrow, and the IRS can challenge informal or backdated valuations.

For publicly traded securities, the date-of-death value is the average of the high and low trading prices on that specific date. Brokerage firms can provide a "date-of-death valuation statement" — the executor should request this in writing as soon as the estate is opened.

For closely held business interests or real property in rural or unusual markets, a qualified business or real estate appraiser must produce a formal valuation report. These can take several weeks to complete, which is why engaging an appraiser immediately is a fiduciary obligation, not an optional administrative task.

The executor should log every asset with its date-of-death fair market value in a spreadsheet or formal inventory before handing documents to the estate's CPA. The Florida Final Tax & Estate Tax Guide includes a Basis Step-Up Valuation Log template designed for exactly this purpose.

Florida Real Estate: What Triggers Capital Gains After Inheritance

Even with the step-up, there are situations where a Florida heir can still owe capital gains tax on an inherited property:

Post-death appreciation. The step-up resets the basis at death. If the heir holds the property for two years and it appreciates another $80,000 before selling, that $80,000 is a taxable gain.

Partial inheritance. If a property was jointly owned — for example, a house owned 50/50 by the decedent and an adult child — only the decedent's 50% share receives a step-up. The surviving co-owner's original purchase price remains their basis.

Property used as a residence by the heir. If an heir moves into the inherited property and later sells it, they may qualify for the Section 121 exclusion ($250,000 or $500,000 if married, filing jointly), which can shelter additional gain on top of the step-up. Meeting the two-year use and ownership test is required.

Property inherited from a trust. Assets held in an irrevocable trust at the time of death do not always receive a full step-up. The tax treatment depends on the trust's structure — a question requiring CPA analysis.

Florida's "Save Our Homes" Complication for Capital Gains Calculations

Florida's "Save Our Homes" (SOH) amendment caps the annual increase in a homesteaded property's assessed value at 3% or the CPI, whichever is lower. Over decades, this creates a large gap between the property's official assessed value and its actual market value.

This creates a dangerous misconception. Heirs sometimes assume the assessed value equals the fair market value when calculating the stepped-up basis. It does not.

The assessed value of a Florida homestead is an administratively constrained number that may be hundreds of thousands of dollars below actual market value. For capital gains purposes, the fair market value — established by a certified appraisal — is what matters, not what the county appraiser's database shows. Confusing the two figures can lead an heir to dramatically understate their basis, triggering a tax bill that should not exist.

What About Florida's Own Capital Gains Tax?

Florida has no state income tax and no state capital gains tax. Any capital gain on the sale of inherited Florida real estate is taxed only at the federal level. For 2026, the federal long-term capital gains rate is 0%, 15%, or 20% depending on the heir's total taxable income for the year. Higher-income taxpayers may also owe the 3.8% Net Investment Income Tax on top of the standard rate.

For most heirs selling quickly after inheritance — particularly if the step-up eliminates most of the gain — the effective federal tax exposure is minimal.

The Two-Year Creditor Window Affects Timing

Under Florida Statute 733.710, unsecured creditor claims against a Florida estate are absolutely barred two years after the date of death. If an estate has significant unresolved debts, a title company may refuse to insure a sale of inherited real estate until the two-year bar has elapsed or all known creditors have been paid.

This is not a capital gains issue directly, but it affects the timing of a sale. An heir planning to sell quickly should understand that the probate attorney needs to manage the creditor notification period before a clean title transfer can occur.

Getting the CPA Handoff Right

The estate's CPA needs three things to handle the basis step-up properly: the date-of-death appraisal or valuation statement, the decedent's original purchase records (for reference, even though they're being replaced), and the details of any improvements made to the property.

Walking into a CPA's office without this documentation is expensive. Florida probate attorneys report that CPAs frequently bill multiple hours just to educate the executor on what to gather before any returns can be prepared. Arriving organized saves hundreds of dollars in billable time.

The Florida Final Tax & Estate Tax Guide walks through the complete documentation checklist for both the basis step-up and the estate's fiduciary income tax filing, so the CPA handoff is clean and fast.

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