Will We Owe Taxes When We Sell?

Most families expect a huge tax bill. Most families are wrong — the bill is usually much smaller than they fear, and often zero.

Here’s why, in normal words.

This is general information, not tax advice. Talk to a CPA about your actual numbers.

The rule that saves you: stepped-up basis

Sounds like jargon. It’s actually simple.

When you sell something, you normally pay tax on your profit. Profit means sale price minus what you paid for it. What you paid is called your basis.

Here’s the good part. When you inherit property, your basis resets to its fair market value on the date of the decedent’s death. Not what they paid for it decades ago.

That reset is called a step-up in basis.

An example

Your mother bought her house in Summerville in 1985 for $60,000.

She died this year. On the day she died, the house was worth $340,000.

You sell it three months later for $345,000.

What most people expect: $345,000 − $60,000 = $285,000 of profit to be taxed. Panic.

What actually happens: Your basis steps up to $340,000 — the value on the day she died. $345,000 − $340,000 = $5,000 of profit.

And you can subtract selling costs, like commissions and closing fees, which will likely wipe out even that.

Realistic result: little or no capital gains tax.

All that growth from 1985 to today? It’s simply not taxed. That’s how the law works.

Why is the date-of-death value so important

Look at that example again. The whole calculation rests on one number: $340,000, the value on the day she died.

If you can’t prove that number, you can’t prove your basis. And if you can’t prove your basis, you’re exposed.

So get a date-of-death value in writing early.

Your options:

A formal appraisal from a licensed appraiser, valued as of the date of death. This is the strongest documentation. Appraisers do these routinely; it’s called a retrospective appraisal.
A detailed market analysis from a realtor, using comparable sales from around that date, with the comps attached.

For a modest estate that’s selling quickly, an agent’s documented analysis is often enough. For a larger or more complicated estate, or where heirs might disagree, get the appraisal. It’s a few hundred dollars against a number that could matter for years.

Do not use the county tax assessment. That is not market value, and it is not what the IRS is looking for.

Get it early. It’s much easier to establish value from three months ago than from three years ago.

Does South Carolina have an inheritance tax?

No. South Carolina does not have a state estate tax or a state inheritance tax.

Some states do. South Carolina isn’t one of them.

What about federal estate tax?

The federal estate tax only applies to very large estates. The exemption is in the millions of dollars per person.

If that’s your family’s situation, you already have an estate attorney and a CPA, and you should be talking to them rather than reading this page.

For the overwhelming majority of families, federal estate tax simply doesn’t apply.

So when would you owe something?

A few situations:

The house’s value increased after the death. If it was worth $340,000 at death and you sell for $380,000 two years later, the $40,000 gain is potentially taxable.

You rented it out. Rental income is taxable. Depreciation you claimed can also affect what you owe when you sell.

You moved in and later sold. Different rules apply. Talk to a CPA.

The estate itself earned income. Interest, dividends, or rent received during probate may require the estate to file its own tax return.

Things that get confused with taxes but aren’t

Property taxes. These keep coming due every year, dead owner or not. Someone has to pay them. Also, the property’s tax classification may change now that it’s no longer an owner-occupied primary residence — which can raise the bill significantly in South Carolina. Check with the county assessor.

Medicaid estate recovery. If the person received certain Medicaid benefits, the state may have a claim against the estate. This is not a tax; it’s a creditor claim. But it can absolutely affect what’s left after the house sells.

A mortgage. Not a tax. Still has to be paid off at closing — and if it’s a reverse mortgage, there’s a deadline.

Liens. Unpaid contractor bills, HOA dues, back taxes, judgments. These come off the top at closing.

What to actually do

Get a date-of-death value in writing. Do this first. It matters more than anything else on this page.
Keep every receipt. Repairs, cleanout, commission, closing costs — some of these adjust your numbers.
Talk to a CPA before you sell, not in April after you already sold.
Ask your attorney about Medicaid recovery if the person was in a nursing home or received long-term care benefits.
Check with the county assessor about the property tax classification.

The bottom line

Most families walk in expecting a tax disaster and walk out owing little or nothing because of the step-up in basis.

But that only holds if you can document the date-of-death value. That one piece of paper is the whole thing.

Get it early. It’s cheap now and expensive to reconstruct later.

Need a documented date-of-death value on a Berkeley or Dorchester County property? Call or text Jim Mills, CRS, SRES, ABR, GRI, at 843-830-3800. He prepares these for estates regularly and can refer you to appraisers who do retrospective valuations.

← Back to Selling a House After Someone Dies — the full guide.

Jim Mills is a licensed South Carolina real estate agent (License #98112) with The Mills Team, NextHome The Agency Group. He is not a CPA, tax preparer, or attorney, and nothing here is tax advice. Tax laws change, and every situation differs. Talk to a qualified tax professional before making decisions based on anything on this page.

Sources: Internal Revenue Code §1014 (basis of property acquired from a decedent); IRS Publication 559, Survivors, Executors, and Administrators; IRS Publication 551, Basis of Assets; S.C. Department of Revenue (no state estate or inheritance tax). Links: Resources