Quick answer: Alabama does not currently impose a separate state inheritance tax or estate tax. Simply inheriting a house generally does not create taxable income. However, federal and Alabama capital gains taxes may apply if the inherited property is later sold for more than its adjusted tax basis.
Fortunately, inherited property generally receives a new tax basis based on its fair market value at the owner’s death. This rule, commonly called a stepped-up basis, often reduces the taxable gain when an inherited home is sold.
For many Central Alabama families, this means the potential tax bill may be much smaller than expected, particularly when the house is sold reasonably soon after the owner’s death.
I help inherited-property owners throughout Tuscaloosa, Bibb, Shelby and Jefferson counties, including families managing Alabama property from another state. Families often contact me before they know whether the house is ready to sell, what it may be worth or even who has authority to sign.
My role is to help organize the real estate side of the decision while their CPA and attorney handle the tax and legal questions.
Important: I am a Central Alabama real estate agent with a degree in finance. I provide real estate guidance and market information, but I am not a CPA, tax preparer, attorney or financial adviser. Always consult a qualified tax or legal professional about your individual situation.
Does Alabama Have an Inheritance Tax?
No. Alabama does not currently impose a separate state inheritance tax on someone simply because they receive property from an estate.
An inheritance tax is a tax paid by the person receiving an inheritance. Alabama does not currently require beneficiaries to pay such a tax merely for inheriting a home.
Receiving an inheritance is also generally not treated as taxable income for federal income-tax purposes. However, income produced by inherited property and gains resulting from its eventual sale may be taxable.
Sources: Alabama Department of Revenue: Estate and Inheritance Tax and IRS: Gifts and Inheritances
Does Alabama Have an Estate Tax?
Alabama does not currently require an estate-tax return for the estates of people who died after December 31, 2004.
An estate tax is different from an inheritance tax. It is generally imposed on the estate before assets are distributed to the beneficiaries.
A federal estate tax may apply to particularly large estates. For people dying in 2026, the federal basic exclusion amount is $15 million per individual, although previous taxable gifts and other circumstances may affect the calculation.
Most Alabama estates do not reach the federal estate-tax threshold.
Sources: Alabama Department of Revenue and IRS Estate Tax Information
What Taxes May Apply When You Sell an Inherited House in Alabama?
The principal tax issue for most heirs is capital gains tax.
Capital gain is generally based on the difference between:
- The amount received from the sale, after applicable selling expenses
- The property’s adjusted tax basis
Federal capital gains tax may apply to the taxable gain. Alabama also generally requires gains from the sale of real estate to be reported on an Alabama income-tax return.
The entire sale price is not necessarily taxable. Tax is generally based on the gain after basis adjustments, qualifying expenses and other applicable tax rules are considered.
Sources: IRS Publication 551: Basis of Assets and Alabama Department of Revenue: Income to Be Reported
What Is Stepped-Up Basis on an Inherited House?
When someone inherits a home, the tax basis is generally not the amount the deceased owner originally paid for it.
Instead, the basis is usually the home’s fair market value on the date of death. In certain situations, an executor may elect an alternate valuation date.
This reset in value is commonly called a step-up in basis.
Example of Stepped-Up Basis
Suppose a parent purchased a Centreville, Alabama, home in 1985 for $40,000.
The home had a fair market value of $300,000 when the parent died. The heir’s starting basis would generally be $300,000 rather than the original $40,000 purchase price.
If the house later sold for $310,000, the starting difference would be $10,000, not the $270,000 of appreciation that occurred during the parent’s lifetime.
Selling expenses, improvements, depreciation and other adjustments could change the actual taxable gain.
Source: IRS Publication 551: Basis of Assets
How Is the Date-of-Death Value Determined?
A qualified retrospective appraisal is generally the strongest way to document the property’s fair market value as of the date of death.
A retrospective appraisal may be completed after the owner’s death, but the appraiser evaluates the property based on its condition and market as of the applicable date.
A real estate agent can provide information such as:
- Comparable home sales
- Local housing-market conditions
- The home’s current market position
- A comparative market analysis
- An estimated listing-price range
However, a real estate agent’s comparative market analysis is not the same as a licensed appraisal and should not be presented as a definitive tax-basis determination.
The executor, CPA or estate attorney should advise the family about the documentation needed for tax purposes.
The IRS defines fair market value as the price at which property would change hands between a willing buyer and willing seller when neither is under pressure to act and both understand the relevant facts.
Source: IRS: Frequently Asked Questions on Estate Taxes
Does It Matter How Long You Wait to Sell an Inherited House?
It can.
If the property increases in value after the date of death, the additional appreciation may create a taxable gain when the house is sold. If the property declines in value, there may be little or no taxable gain.
Waiting can also create costs unrelated to income taxes, including:
- Property taxes
- Insurance
- Utilities
- Lawn maintenance
- Repairs
- Security
- Homeowners association fees
- Damage caused by vacancy or deferred maintenance
The decision should not be based on taxes alone. Families should consider the property’s condition, carrying costs, local market and the needs of all heirs.
One family I helped had left the house sitting for a couple of years before deciding to sell. Since they had the utilities turned on, they thought they were safe from losing value to damage caused by vacancy. As it turned out, however, there were critters in the attic chewing through wires and going potty into the insulation and the drywall. By the time the property sold, the damage was in the thousands to repair the damage and remove the deposits for the next owners.
Inherited property is generally treated as having been held for more than one year, regardless of how long the beneficiary actually owned it. Therefore, a taxable gain from its sale is generally treated as a long-term capital gain.
Source: IRS Publication 544: Sales and Other Dispositions of Assets
What If the Inherited Home Sells for Less Than Its Basis?
If the property sells for less than its adjusted basis, there may be no taxable capital gain.
Whether the resulting loss is deductible is a more complicated question. Losses involving personal-use property are generally not deductible. Treatment may differ when property was held for investment or sold by an estate.
A CPA should review how the property was used, who legally sold it and how the transaction was structured.
Source: IRS: Capital Gains, Losses and Sale of a Home
What Happens If One Heir Buys Out the Others?
A sibling or co-heir buyout may be treated as a sale of the departing heir’s ownership interest.
The basis and tax results can depend on:
- How title passed to the heirs
- Whether the estate or beneficiaries own the property
- How the buyout is documented
- Whether other inherited assets are involved
- Whether the transaction occurs during probate
- Applicable partition and related-party rules
Before money changes hands, the heirs should speak with an estate attorney and CPA. A real estate professional can help evaluate the property and explain the local market, but should not design the buyout for tax purposes.
Frequently Asked Questions About Alabama Inherited-Property Taxes
Do I report an inheritance as income?
Receiving an inheritance is generally not considered taxable income for federal or Alabama income-tax purposes.
However, income generated by inherited assets may be taxable. A later sale of inherited property must also be reported when applicable.
Do I pay tax on the entire sale price?
Generally, no. Capital gains tax is based on the taxable gain, not the entire sale price.
The calculation usually considers the property’s adjusted basis, amount realized from the sale, selling expenses and other applicable adjustments.
Can a real estate agent determine my stepped-up basis?
A real estate agent can provide comparable sales and useful market information, but does not make the final tax-basis determination.
A qualified retrospective appraisal is usually stronger valuation evidence. Your CPA, executor or estate attorney should advise you about the documentation required.
Do I need an appraisal if no estate-tax return is required?
A retrospective appraisal may still be valuable. Without reliable evidence of the property’s fair market value at the date of death, calculating gain or loss years later may become more difficult.
Ask your CPA or estate attorney whether an appraisal is appropriate for your estate.
Does probate change the stepped-up basis?
Probate generally concerns the legal administration and transfer of the property. It does not, by itself, eliminate the inherited-property basis rules.
However, probate can affect who has authority to sell the house, when it can be sold and who reports the transaction.
Will Alabama tax the capital gain?
Alabama generally requires gains from the sale of real estate to be reported as income. The amount and treatment depend on the seller and the circumstances of the transaction.
The Bottom Line for Alabama Families
Alabama does not currently impose a separate inheritance tax or estate tax merely because a family receives an inherited home.
The more likely tax consideration is a potential capital gain when the property is sold. Because inherited real estate generally receives a basis tied to its fair market value at the owner’s death, the taxable gain may be considerably smaller than families initially expect.
The best approach is to involve the right professionals early:
- An estate attorney to address ownership, probate and legal authority
- A CPA or qualified tax professional to address basis and tax reporting
- A qualified appraiser when a retrospective date-of-death valuation is needed
- A knowledgeable local real estate agent to evaluate the home, its condition and the current market
Selling an Inherited Home in Central Alabama?
You do not need to have the house cleaned out, repaired or completely through probate before calling. An early conversation can help you avoid spending money in the wrong places.
I help families understand the real estate side of selling inherited property, including the home’s condition, likely buyers, current competition and potential market value.
I can also help you identify when additional assistance may be needed from an appraiser, estate attorney or tax professional.
My role is not to give tax or legal advice. My role is to help you make a well-informed real estate decision with greater clarity and less stress.
Not sure what your inherited Alabama home may sell for? I can evaluate its current market position and help you identify the next real estate step. Request an Inherited Home Market Review, or use the button below to schedule your confidential consultation.
Julie Holdsambeck is a Central Alabama real estate professional with eXp Realty and holds a Bachelor of Business Administration in Finance. She is not a CPA, tax preparer, attorney or financial advisor. This article is for general educational purposes only and should not be relied upon as individualized tax, legal or financial advice. Tax laws and individual circumstances can change. Consult qualified professionals before making decisions.
Official Sources
- Alabama Department of Revenue: Alabama Estate and Inheritance Tax
- Alabama Department of Revenue: Income Reported on an Alabama Tax Return
- IRS: Gifts and Inheritances
- IRS Publication 551: Basis of Assets
- IRS Publication 544: Sales and Other Dispositions of Assets
- IRS: Estate Tax
- IRS: Capital Gains, Losses and Sale of a Home
