New Hampshire Inherited Real Estate: Estate Tax Guide vs. Learning RETT Exemptions the Hard Way

Executors and beneficiaries selling inherited New Hampshire real estate face two tax questions that most free resources answer incompletely or incorrectly: whether the Real Estate Transfer Tax applies to the sale, and how the step-up in basis affects capital gains. Getting either wrong is expensive — one by thousands of dollars at closing, the other potentially by tens of thousands or more in unnecessary capital gains tax.

The direct answer: the transfer of inherited property from the deceased to the heir is RETT-exempt under RSA 78-B:2, XI, but the subsequent sale of that property to a third party on the open market is fully taxable at $0.75 per $100 on the seller. Separately, the step-up in basis resets the property's tax basis to fair market value on the date of death, eliminating all pre-death appreciation from capital gains calculation — but only if you document the fair market value correctly before any sale.

Who This Is For

This page is for executors and beneficiaries who are:

• Preparing to sell an inherited New Hampshire home, vacation property, or land
• Trying to understand whether the RETT applies to their transaction
• Unsure how the step-up in basis works or how to document it
• Dealing with a property that has significant appreciation since the original purchase
• Managing the transition from "exempt estate transfer" to "taxable market sale" and not sure where the line is

Who This Is NOT For

This is not for:

• Executors whose inherited property has already been appraised and properly documented for the step-up in basis and who simply need mechanical tax preparation (a CPA handles the return)
• Transactions involving complex commercial real estate, multi-unit properties with active business operations, or properties with environmental issues — those situations benefit from professional legal review beyond what a guide covers
• Estates where the combined value of all assets approaches or exceeds the $15 million federal estate tax threshold — those situations require professional estate planning counsel

Part 1: The Real Estate Transfer Tax (RETT) — What NH Executors Get Wrong

The New Hampshire RETT applies to the "sale, grant, and transfer" of real property at a rate of $0.75 per $100 of sale price on both the buyer and the seller — $1.50 per $100 total. On a $450,000 property, the combined tax is $6,750, split equally between buyer and seller.

The exemption that confuses executors: Under RSA 78-B:2, XI, the RETT does not apply to transfers that occur by devise (through a will), by intestate succession, or by the death of a joint tenant. This means:

• When the deceased's will transfers the family home to an adult child, no RETT is owed on that transfer.
• When a surviving spouse inherits jointly held property by right of survivorship, no RETT is owed on that transfer.

This is the "New Hampshire is tax-friendly" exemption that most people hear about and stop reading at.

What most people do not read: The exemption covers the initial transfer from the deceased to the heir. It does not cover what happens next. When the heir turns around and sells that property on the open market to an unrelated buyer, the RETT applies in full. The heir is now the seller, the buyer pays their $0.75 per $100, and the heir (as seller) pays the same.

The practical math:

The RETT is collected at the county Registry of Deeds at closing. In a standard residential sale, the title company or closing attorney handles the calculation and payment — but the seller is responsible for ensuring the amount is correct and that any applicable exemptions are claimed.

When does the RSA 78-B:2 exemption need to appear on the deed?

The exemption applies to the deed that transfers property from the estate to the beneficiary — the executor's deed or administrator's deed recorded at the county registry. This deed must include the notation "Transfer Tax: EXEMPT, RSA 78-B:2, XI" to claim the exemption and avoid the registry's default assumption that the RETT applies. The subsequent deed from the beneficiary to the eventual buyer is a standard market transaction with no exemption available.

Additional RETT-exempt transfers relevant to NH estates:

RSA 78-B:2 also exempts transfers between an individual and their revocable trust, and transfers by transfer-on-death deed. So if the deceased used a living trust and the property is now being distributed to beneficiaries from the trust, that trust-to-beneficiary transfer is also exempt. The open-market sale after that is not.

Part 2: The Step-Up in Basis — The Most Valuable Tax Provision Beneficiaries Do Not Use Correctly

The federal step-up in basis is the most significant tax benefit available to beneficiaries of appreciated property. When someone inherits an asset at death, the tax basis resets to fair market value on the date of death — erasing all pre-death appreciation for capital gains purposes.

New Hampshire example:

A lakefront property on Lake Winnipesaukee was purchased in 1987 for $95,000. On the date of the owner's death in 2026, it is appraised at $780,000. The property is inherited by a daughter.

Without the step-up in basis: If the daughter somehow had to use the original $95,000 basis, selling the property for $780,000 would trigger a $685,000 capital gain. At the long-term capital gains rate (15% or 20% for high-income taxpayers at the federal level), the tax bill on that gain would be $102,750 to $137,000.

With the step-up in basis: The daughter's basis resets to $780,000 on the date of death. If she sells immediately for $780,000, her capital gain is zero. Federal capital gains tax owed: $0. New Hampshire has no state capital gains tax, so state capital gains tax owed: also $0.

The difference is the entire appreciation accumulated over 39 years — completely sheltered by the step-up.

What the step-up does not erase: Any appreciation after the date of death. If the daughter waits 2 years and sells for $830,000, she owes capital gains tax on the $50,000 gain earned after the date of death (above the stepped-up basis of $780,000). The pre-death gain is eliminated; post-death gains are taxed normally.

Documenting the Step-Up in Basis: The Step Executors Skip

The step-up is only as good as your documentation. To claim the stepped-up basis and defend it to the IRS, you need to establish fair market value on the exact date of death.

Acceptable methods for New Hampshire real estate:

• Certified appraisal by a qualified appraiser — the gold standard. A licensed real estate appraiser prepares a formal report establishing value as of the date of death. Cost: typically $400–$600 for a residential property. Essential for high-value properties or whenever there is any question about what fair market value was.
• Comparable sales analysis — a less formal approach using recent sales of similar properties to establish value. This can be prepared by a real estate agent as a Comparative Market Analysis (CMA). Acceptable for IRS purposes but more vulnerable to challenge than a certified appraisal.
• Assessed value — used cautiously. NH municipalities assess property for tax purposes, and assessed values can diverge significantly from market value (both above and below). Using assessed value without verification can result in an incorrectly stated basis.

The timing error that destroys the step-up: Executors who list and sell inherited property quickly sometimes complete the sale before obtaining a formal appraisal — and then try to use the sale price as the fair market value on the date of death. This does not work if there was a gap between the date of death and the date of sale (any appreciation between the two dates is taxable gain; the sale price does not retroactively define the date-of-death value).

Get the appraisal before the sale. In most cases, the appraisal cost is recoverable as an estate administration expense, and it eliminates any IRS challenge to the basis.

The Interaction: RETT + Step-Up + Capital Gains on a NH Sale

When a New Hampshire executor sells inherited real estate, three tax calculations apply to the transaction:

1. Capital gains tax on any appreciation above the stepped-up basis (federal; NH has no state capital gains tax)
2. Seller's share of the RETT ($0.75 per $100 of sale price)
3. LCHIP fee ($25 flat fee collected at the Registry of Deeds on all recorded documents, including deeds)

The RETT and LCHIP fee are deductible as estate administration expenses on Form 706 (if filed) and on Schedule A of Form 1041 (if the estate is in the income tax filing position). The net effect is that the executor reports the after-RETT proceeds as the sale price for purposes of calculating any capital gain — though if the step-up was properly documented and the property sold near the date-of-death value, the capital gain may be zero or minimal regardless.

What the NH Estate Tax Guide Covers for Real Estate Transactions

The New Hampshire Final Tax and Estate Tax Guide provides a complete reference for executors managing NH real estate:

• The full RETT exemption structure under RSA 78-B:2 — every category of exempt transfer, and the notation required on the deed to claim it
• Step-up in basis mechanics with a specific New Hampshire real estate example
• The alternate valuation date election (for large estates where property values declined after death)
• How to document fair market value for IRS purposes
• The LCHIP fee and Recording Deeds fees at the county Registry of Deeds
• The interaction between the 6-month creditor waiting period and real estate sales timing
• Medicaid lien clearance requirements before any real estate transfer

The guide's Real Estate Transfer Tax Exemption Reference is a standalone printable tool mapping every RSA 78-B:2 exemption category — useful to bring to the county Registry of Deeds or share with a real estate closing attorney.

FAQ

Does New Hampshire tax capital gains on inherited property? New Hampshire has no state capital gains tax. All capital gains from the sale of inherited NH property are subject only to federal capital gains tax. The federal rate is 0%, 15%, or 20% depending on the taxpayer's income level, plus a 3.8% net investment income tax for high-income taxpayers. Because of the step-up in basis, inherited property sold at or near the date-of-death value has zero capital gain — meaning zero federal capital gains tax as well.

I inherited a property that was already in a living trust. Does the RETT apply to the trust distribution? No. RSA 78-B:2 exempts transfers between an individual and their revocable trust, and this extends to distributions from a trust to its beneficiaries. The transfer from the trust to you as beneficiary is exempt. The subsequent sale on the open market is fully subject to the RETT.

What is the alternate valuation date and when does it apply? Instead of using the date-of-death fair market value, executors of taxable estates (above the $15 million threshold) can elect to value the estate 6 months after death. This election is only available for Form 706 filers (taxable estates), and only if using the alternate date both reduces the gross estate value and reduces the estate tax liability. For most NH estates — which are below the taxable threshold — the alternate valuation date is irrelevant. But it is mentioned in the guide for completeness.

If the estate's real estate has declined in value since the date of death, does the basis still step up? Yes — the basis steps up (or down) to fair market value on the date of death regardless of direction. If a property was worth $600,000 on the date of death but was purchased for $800,000, the basis steps down to $600,000. A sale at $600,000 produces zero capital gain. A sale at $500,000 produces a $100,000 capital loss, which may offset other capital gains in the estate or for the beneficiary.

Does the step-up in basis apply to an inherited IRA or 401(k)? No. Retirement accounts (IRAs, 401(k)s, pensions) do not receive the step-up in basis because they were funded with pre-tax dollars — the income tax was deferred, not avoided. Distributions from inherited retirement accounts are taxable as ordinary income to the beneficiary under the applicable inherited IRA distribution rules. The step-up applies to assets that already have a basis in the traditional sense: real estate, stocks, business interests, and other taxable investments.

We're selling the estate home quickly. Is an appraisal still necessary? Yes. Even if the sale happens within weeks of death, the sale price is not automatically the same as the date-of-death fair market value — and the IRS may challenge a basis claim supported only by the sale price without an independent appraisal. The appraisal cost ($400–$600 for a typical residential property) is recoverable as an estate expense and eliminates any future basis dispute. This is especially important for properties with significant pre-death appreciation where the step-up saves substantial capital gains tax.

How does the executor's deed for the exempt transfer to beneficiaries need to be formatted? The executor's deed must include the notation "Transfer Tax: EXEMPT, RSA 78-B:2, XI" on its face before it is recorded at the county Registry of Deeds. Without this notation, the registry will presume the RETT applies and charge accordingly. The standard recording fees ($12 for the first page, $4 for each additional page) plus the $25 LCHIP surcharge apply regardless of the RETT exemption. The LCHIP surcharge must be paid by separate check made payable to the specific county registry.

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