Selling Inherited Property in Texas: Capital Gains, Title, and Process

Selling a home, land, or other real estate that you inherited in Texas involves more than listing the property. Before a sale can close, title must be clear. Before you sign anything, you should understand the tax implications. And when multiple heirs share the property, even the decision to sell requires coordination.

This guide walks through the full process — from establishing that you have the right to sell, to calculating what you will owe (usually very little) in capital gains tax, to splitting the proceeds among co-heirs.

Step One: Establish Clear Title

The most important thing to understand about selling inherited real estate: you cannot sell property you do not have clear title to. A title company will not issue title insurance, and a buyer's lender will not fund a mortgage, unless the chain of title shows clearly that the property passed legally from the deceased to the current sellers.

How you clear title depends on how the estate was handled:

Letters Testamentary / Letters of Administration. If the estate went through probate and the executor has received Letters Testamentary (with a will) or Letters of Administration (without a will), the executor can deed the property to the beneficiaries. Once the deed is recorded, the heirs have clear title and can sell.

Muniment of Title. For a valid will where there are no unpaid debts, muniment of title allows the will itself — once admitted to probate — to function as title documentation. After the court enters its order, the heir records the will and court order, and clear title is established without a separate deed.

Affidavit of Heirship. For property where there was no will and full probate is impractical, an affidavit of heirship — signed by two disinterested witnesses with personal knowledge of the family — can be recorded to establish the heirs' claim to real property. Title companies typically require the affidavit to be on file for at least two years before insuring based on it, though some companies accept it sooner with additional assurances.

Surviving spouse with community property. If the property was community property and is passing to a surviving spouse who already owned half, the spouse may only need to clear the deceased's half through one of the above methods.

If you are not sure which path applies to your situation, a Texas probate attorney or a title company can review what is on file and advise you.

The Step-Up in Basis: Why You Probably Owe Very Little in Capital Gains

This is the most important tax concept for anyone selling inherited property, and it works strongly in your favor.

When you inherit property, your tax basis in that property is stepped up to the property's fair market value on the date the owner died — not what they originally paid for it. Under the federal tax code (IRC § 1014), the decades of appreciation that occurred during the deceased's lifetime are simply erased for capital gains purposes.

Example: Your parent bought a house in 1985 for $80,000. When they died, it was appraised at $450,000. Your basis as heir is $450,000. If you sell it for $465,000 six months later, you have a capital gain of only $15,000 — not $385,000.

The Texas community property bonus: Because Texas is a community property state, both halves of community property receive a step-up when the first spouse dies. If a couple owned a house as community property and one spouse dies, the surviving spouse's entire interest — not just the deceased's half — gets the stepped-up basis. This is a significant advantage over joint tenancy in non-community-property states.

See our Texas step-up in basis guide for more examples and how to document the basis properly.

Important: Get an appraisal dated at death. The stepped-up basis is the fair market value at the date of death. A formal appraisal documents this figure. Without documentation, you may have difficulty substantiating your basis to the IRS if questioned later. This is especially important for real estate, which often has a clear value gap between the purchase price and current value.

Capital Gains Tax on the Sale

Once you know your basis (the stepped-up value), calculating your capital gain is straightforward:

Capital gain = Sale price − Basis − Selling costs

Selling costs (realtor commissions, title fees, transfer taxes, repairs required by the buyer) reduce the gain. Keep records of all costs associated with the sale.

Tax rate on inherited property:

Inherited property is always treated as long-term capital gains, regardless of how long you actually held it after inheriting it. Long-term capital gains rates are 0%, 15%, or 20% depending on your income — much lower than ordinary income tax rates.
If your total taxable income (including the gain) is below approximately $47,000 (single) or $94,000 (married filing jointly) in 2026, the long-term capital gains rate may be 0%.

Federal estate tax, if applicable, may also generate a deduction that further reduces capital gains. This is uncommon outside very large estates but worth discussing with a tax advisor.

Texas Homestead Property: Special Considerations

Texas has strong homestead protections. If the inherited property was the deceased's homestead — the primary residence — a few things are worth knowing:

Creditor protection. The homestead is protected from most creditors during the estate administration. The surviving spouse and minor children have the right to occupy it even if title passes to others. However, once you receive clear title and close the estate, these protections are tied to the property as a residence, not to the sale proceeds.

Homestead exemption after death. The property tax homestead exemption does not automatically transfer to a new owner who does not occupy the home as their primary residence. If you inherit the home and plan to sell it, contact the county appraisal district. The exemption may continue for a period while the estate is being settled, but it will lapse once the home is transferred out of the estate or ceases to be a primary residence.

Minor children. If the deceased had minor children with a right to the homestead, the homestead cannot be sold without court approval until the youngest child reaches 18. This is a meaningful restriction if you are trying to sell quickly.

Practical Steps to Sell

1. Establish title. Confirm the probate or heirship process is complete and the deed to the heirs has been recorded (or the muniment of title order recorded, or the affidavit of heirship filed).

2. Get a date-of-death appraisal. Commission a formal appraisal retroactively valued as of the date of death. Residential appraisers can provide this; save the report with your estate records.

3. Hire a real estate agent familiar with estate sales. Estate sales sometimes involve properties that have not been updated, sellers who live out of state, and co-ownership among multiple heirs. An agent with probate or estate sale experience can navigate these efficiently.

4. Work with a title company early. Bring the title company into the process before listing. They will review the chain of title and tell you if anything needs to be resolved before closing. Surprises at closing delay sales and can kill deals.

5. Coordinate with co-heirs. If multiple heirs own the property, all must agree on the sale and sign the closing documents. Resolve disagreements about timing, price, or whether to sell at all before going under contract.

When Co-Heirs Disagree

If multiple heirs inherit real estate and cannot agree on what to do with it, any co-owner can file a partition action in Texas district court. A court can either divide the property (if it can be divided fairly) or order a forced sale and distribute the proceeds. Partition actions are expensive and adversarial — the better outcome is a negotiated agreement.

Options to avoid partition:

One heir buys out the others at a mutually agreed price
Hire a mediator to facilitate agreement
Agree on a listing price range and let the market set the final number

Splitting Proceeds Among Multiple Heirs

Once the sale closes, proceeds are distributed according to each heir's ownership share. If three heirs each inherited one-third of the property, each receives one-third of the net proceeds after closing costs.

Practical steps:

Open a separate estate account to receive the proceeds
Distribute from the estate account to each heir individually
Provide each heir with a written accounting showing the sale price, all deductions, and each person's share — this helps with each heir's individual capital gains calculation

Each heir reports their share of the capital gain on their own federal tax return (Schedule D). Their basis is their proportional share of the stepped-up value.

1031 Exchange for Investment Property

If the inherited property was a rental or other investment property (not a primary residence), you can defer capital gains tax by reinvesting the proceeds into another like-kind investment property through a 1031 exchange (named for IRC § 1031).

Key requirements:

Must identify a replacement property within 45 days of the sale
Must close on the replacement property within 180 days
Must use a qualified intermediary to hold the proceeds between transactions
The replacement property must be of equal or greater value

A 1031 exchange defers tax — it does not eliminate it. The deferred gain eventually becomes due when the replacement property is sold without another exchange. However, if you hold the replacement property until death, your heirs receive another step-up in basis, potentially eliminating the gain entirely.

Related Guides

Sources:

"IRC § 1014 — Basis of Property Acquired from a Decedent," U.S. Code, 2025
"IRC § 1031 — Exchange of Real Property Held for Productive Use or Investment," U.S. Code, 2025
"Texas Estates Code — Affidavit of Heirship and Muniment of Title," Texas Legislature, 2025, https://statutes.capitol.texas.gov/

This guide provides general information about selling inherited property in Texas. Tax situations vary. Consult a qualified Texas real estate attorney and tax advisor for guidance specific to your situation.