There's a lot of legal and tax complexity tied to a property that's inherited, and it depends first on how and where it was inherited. If you're in the middle of a formal probate or estate administration, there's going to be a lawyer walking you through it. If that lawyer doesn't practice real estate law specifically, they'll most likely bring in someone who does. I'm not going to talk about that path here, because it's already got professional guardrails around it.

Instead, let me talk about the situation where most people get caught unaware: a loved one gifting a home, or a home passing to you upon death, either through a will or by operation of law. How you take possession, when you sell, and the tax implications that follow are what separate a giant headache with potential losses from a smaller headache with a genuinely positive outcome for your life. No matter what city or county in Washington you inherit a home in, it's state law we're discussing here, alongside federal tax rules that apply the same way regardless of where you live.

Why This Post Isn't About Probate

Formal probate exists to do exactly this work for you, under court supervision, with a licensed attorney involved. If that's your situation, lean on that structure. It's there for a reason. What trips people up more often is the simpler-sounding version: mom's house was left to you and your siblings in a will, or a parent added you to the title years ago, or state intestacy law determined who inherits because there wasn't a will at all. Those situations feel less formal, which is exactly why the tax and title details get missed.

How You Take Possession Matters

Before you even get to taxes, how the property legally passes to you affects everything downstream, including what basis you inherit, what's on title, and what you're legally allowed to do with the home before you sell it. A transfer by will, a transfer by intestate succession under Washington law, and a transfer where you were already a joint owner before death can each produce a different starting point. This is exactly the kind of detail where a quick conversation with an estate attorney upfront saves real money later. I say that as your real estate agent, not your attorney. I'm not either one, and I'm not going to pretend to be.

Step-Up in Basis: The Single Biggest Number in This Process

Here's the concept that matters more than almost anything else in this conversation. Under federal tax law, specifically IRC Section 1014, when you inherit real estate, your cost basis generally resets, or "steps up," to the property's fair market value on the date the original owner died (not what they originally paid for it decades ago).

Say a parent bought a home in Kenmore in 1985 for $95,000, and it's worth $850,000 on the date they pass away. Under the old basis, if you sold for $850,000, you'd theoretically be looking at capital gains tax on roughly $755,000 of appreciation. With the step-up, your basis becomes $850,000. If you sell close to that value shortly after inheriting, your taxable gain could be close to zero. That's the single biggest reason inherited real estate is often taxed far more gently than most people assume walking in.

Washington's Community Property Advantage

Washington is a community property state, and that status can work in your favor in a specific situation: when a married couple owned a home together and one spouse passes away. Property held as community property can receive a full step-up in basis on both halves of the property, not just the deceased spouse's half. In a lot of other states, a surviving spouse only gets a stepped-up basis on the portion the deceased spouse owned, while their own half keeps its original, lower basis. Washington's community property treatment can mean a full reset instead, which can meaningfully reduce future capital gains exposure if the surviving spouse later sells.

Whether a specific property actually qualifies for this treatment depends on exactly how title was held and whether it meets the legal definition of community property. This is not something to assume. It's something to confirm with a CPA or estate attorney who can look at the actual deed and title history.

Washington vs. Federal: Which Taxes Actually Apply

This is where I see the most confusion, so let's be direct about it.

Figures per current secondary estate-planning and tax reporting as of 2026, not a direct Washington Department of Revenue or IRS citation. Tax law changes. Confirm current numbers with your CPA or estate attorney before making any decisions based on them.

When You Sell Changes Your Tax Picture

The step-up in basis resets your starting point, but the clock doesn't stop there. If the home continues to appreciate after the date of death and before you sell, that additional appreciation is a taxable gain at the federal level. Sell relatively soon after inheriting, and your gain is often small or nonexistent. Hold onto the property for years while it keeps appreciating, and you're back to owing tax on the growth that happened on your watch, not the original owner's.

There's also the federal primary residence exclusion under IRS Section 121 (Publication 523), which lets a homeowner exclude up to $250,000 of gain if single, or $500,000 if married filing jointly, when they sell. That exclusion isn't automatic just because you inherited the home. You generally have to have lived in it as your primary residence for at least two of the five years before the sale. If you inherit a home and sell it as an investment or rental property without living in it, that exclusion typically doesn't apply.

If you and your siblings inherited a home together and you're weighing whether to sell now or hold, it's worth pairing the tax conversation with a market conversation. I've written extensively about how to sell your home in Bothell, WA efficiently, and about the 9 critical mistakes Bothell home sellers make that apply just as much to an inherited property as any standard residential listing.