How Step-Up In Basis Affects Inherited Properties (And What It Means for Your Mortgage)? | reAlpha Mortgage

If you’ve inherited property recently, you might be staring down a list of decisions - do you sell, rent it out, refinance, or move in? And what about taxes? One concept that can dramatically impact your outcome is the step-up in basis.

Let’s sort through the confusion and unpack why this seemingly technical rule could save you thousands - and how it plays into your mortgage or refinance strategy.

• The step-up in basis adjusts the property's value to its fair market value at the time of inheritance, potentially reducing capital gains taxes.
• Understanding this rule can help you better plan whether to sell, rent, or refinance an inherited home.
• Equity from an inherited property could open up low-cost mortgage opportunities - if handled wisely.
• Mortgage lenders consider inherited property differently, and strategic timing matters.
• Proper disclosure, tax planning, and mortgage consultation are essential to avoid costly mistakes.

The step-up in basis is a tax provision that allows the cost basis of an inherited asset (like a home) to be “stepped up” to its market value at the time of the owner’s death.

Example:

• If your parent bought a home for $150,000, and it’s worth $450,000 when you inherit it, the new tax basis is $450,000 - not $150,000.
• If you sell the home soon after inheriting it for around $450,000, your taxable gain could be negligible.

Why it matters: This rule often reduces or eliminates capital gains tax upon sale, freeing up more equity for your next move.

Here’s where things get strategic: With more equity preserved, you might consider:

• Refinancing an existing mortgage on the inherited home to pull out cash.
• Taking out a HELOC (Home Equity Line of Credit) based on the stepped-up value.
• Using the proceeds from a sale (with minimized tax) as a down payment on a new primary residence.
• Renting out the home as an investment property and using the rental income to qualify for future loans.

Heads up: Not all lenders treat inherited property the same. Lenders will still assess:

• Your debt-to-income (DTI) ratio.
• Whether the home is free and clear or has an existing mortgage.
• The home’s appraised value versus your stepped-up basis.

Always consult with a mortgage advisor before assuming what’s possible.

Pro Tip: Time your sale or refi close to the date of inheritance for maximum benefit - market shifts can reduce the stepped-up advantage.

Other strategic moves:

• Get a professional appraisal at the time of inheritance for documentation.
• Keep records of all expenses made on the property post-inheritance.
• Talk to a tax advisor about using a 1031 exchange if you're investing the proceeds.
• Use the new equity strategically in today’s shifting rate market.

Find the Perfect Mortgage for Your Dream Home with reAlpha Mortgage.

Compare options, calculate payments, and get expert guidance - all in one place.

Check if you qualify

Not all paths are created equal. Here’s how you can make the most informed decision:

1. Get a Property Appraisal – This establishes your new tax basis and supports refinance or sale.
2. Connect with a Mortgage Advisor – Explore HELOCs, cash-out refis, or low-rate purchase options.
3. Talk to a Tax Pro – Especially if you're juggling estate taxes, potential capital gains, or rental income.
4. Compare Your Options – Sell, rent, or keep? Each has mortgage implications worth reviewing carefully.

Looking for tools to help? Platforms like reAlpha offer unique solutions for homebuyers and investors to make smarter decisions around inherited properties-and reAlpha Mortgage can guide you through tailored refinance and loan strategies that align with your equity goals.

Inheriting property is a rare opportunity to build lasting wealth - don’t leave money on the table. With reAlpha Mortgage, you can unlock up to 75% of your buyer agent’s commission back to put toward closing costs, inspections, or your next investment.

Here’s how it works:

• Get 25% back just by using a reAlpha agent

• Add a reAlpha Mortgage to boost it to 50%

• Bundle with reAlpha Title and reach the full 75% rebate

Smart equity starts here. Start saving thousands at reAlpha Mortgage.

It’s a tax rule that resets the home’s value for tax purposes to its market value at the time of the previous owner’s death, potentially reducing capital gains if sold.

Yes. The stepped-up basis becomes your new depreciation baseline if you convert it to a rental.

Not necessarily - it depends on the home’s condition, your credit, and other financial factors. But the equity can give you more flexibility.

Typically, no. You must wait until ownership is officially transferred.

Selling too quickly without understanding your new tax basis, or missing the opportunity to leverage equity for better mortgage terms.

reAlpha Mortgage, NMLS #1743790. Equal Housing Lender. All loans are subject to underwriting approval. Terms and conditions may apply. This blog is for educational purposes only and should not be considered financial, legal, or tax advice. Please consult with a licensed professional for personalized guidance. reAlpha may have partnerships with the platforms mentioned. Rates and mortgage terms vary and are subject to change.

Find the Perfect Mortgage for Your Dream Home with reAlpha Mortgage.

Compare options, calculate payments, and get expert guidance - all in one place.

Check if you qualify