Getting a house from a family member who has passed away can feel overwhelming. You might wonder if you will have to pay taxes when you sell it. The good news is that many people do not owe federal taxes on inherited property sales. But there are other costs and taxes you need to know about.

This guide breaks down every tax and fee you might face. We will cover federal taxes, Nebraska state rules, and other costs that catch people by surprise. By the end, you will know exactly what to expect when selling inherited property in Lincoln, NE.

Federal Taxes You Might Owe on Inherited Property

When you inherit a house, the IRS gives you a special tax break called a “stepped-up basis.” This rule can save you thousands of dollars.

Here is how it works. Let us say your parent bought a house in 1990 for $80,000. When they passed away in 2024, that house was worth $250,000. You inherit the property. The IRS treats your starting point (your basis) as $250,000, not the original $80,000. This is the stepped-up basis.

Now imagine you sell the house six months later for $255,000. You only pay capital gains tax on the difference between $250,000 and $255,000. That is just $5,000 in profit. Without the stepped-up basis, you would pay tax on $175,000 in profit instead.

Most people who sell inherited property quickly do not owe any federal capital gains tax. The property value rarely changes much in a short time. If you sell within a year of inheriting, you probably will not have a tax bill.

But what if you keep the house for years? Let us say you rent it out or use it as a vacation home. Five years later, you sell it for $300,000. Now you have $50,000 in capital gains ($300,000 minus the $250,000 basis). You would owe federal tax on that $50,000.

The tax rate depends on how long you have owned the property. If you sell within one year of inheriting, it counts as short-term capital gains. The IRS taxes this at your regular income tax rate, which could be 10% to 37%. If you wait more than a year, it becomes long-term capital gains. These rates are lower, usually 0%, 15%, or 20%, depending on your total income.

One more thing to remember: if you inherit a house with other family members, each person gets a stepped-up basis on their share. If three siblings each inherit one-third of a house, each person calculates their own taxes based on their portion.

Nebraska Inheritance Tax: What Lincoln Homeowners Need to Know

Nebraska is one of only six states with an inheritance tax. This is different from federal taxes. The inheritance tax gets paid before you even sell the property. It is based on the value of everything you inherit, not just real estate.

The amount you pay depends on your relationship to the person who died. Nebraska divides heirs into three groups.

Close family members pay the least. If you are a parent, grandparent, sibling, child, or grandchild, you pay nothing on the first $40,000 you inherit. After that, you pay 1% on everything above $40,000. So if you inherit a house worth $240,000, you pay 1% on $200,000, which equals $2,000.

More distant relatives pay more. Aunts, uncles, nieces, and nephews pay nothing on the first $15,000. After that, they pay 13% on amounts between $15,000 and $25,000. They pay 18% on anything above $25,000. These rates add up fast.

Non-relatives pay the most. Friends or unmarried partners pay nothing on the first $10,000. Then they pay 18% on everything above that amount.

You must file the inheritance tax return with Lancaster County within one year of the death. You have to pay the tax before you can sell the property or transfer the title. This catches many people off guard. Companies like Sell To How work with Lincoln families who need to sell quickly to cover inheritance tax bills.

One important point: spouses do not pay Nebraska inheritance tax. If you inherit property from your husband or wife, you owe zero state inheritance tax, no matter how much it is worth.

The executor of the estate usually handles filing the inheritance tax paperwork. But if you are the heir, make sure this gets done. If you try to sell the house before paying the inheritance tax, the county will not let you transfer the deed.

Other Costs Beyond Taxes When Selling Inherited Property

Taxes are just one part of the picture. Selling any house comes with costs, and inherited property often has extra expenses.

Real estate agent commissions usually take 5% to 6% of the sale price. On a $250,000 house, that is $12,500 to $15,000. You split this between the buyer’s and seller’s agents. Some people skip agents and sell to cash buyers to avoid this cost.

Closing costs add another 1% to 3% of the sale price. These cover title insurance, attorney fees, recording fees, and transfer taxes. In Lincoln, expect to pay about $2,500 to $7,500 in closing costs on a typical home sale.

Property maintenance and repairs can get expensive fast. Many inherited homes need work before they sell. The house might have sat empty for months. Pipes could freeze. The roof might leak. Carpets and paint often need updating. Some families spend $10,000 to $30,000 getting an inherited house ready to list.

Property taxes do not stop when someone dies. You still owe taxes for every month you own the house. In Lincoln, property taxes average about 1.76% of the home value per year. That breaks down to roughly $367 per month on a $250,000 house. If it takes you six months to sell, you will owe about $2,200 in property taxes.

Homeowners insurance is required if the house has a mortgage. Even without a mortgage, you need insurance to protect yourself from liability. Empty homes cost more to insure. Budget $100 to $200 per month for insurance on an inherited property.

Utility bills continue to. You need to keep the heat on in winter so pipes do not freeze. You might need to mow the lawn or shovel snow. These small costs add up over time.

Some inherited homes have liens or debts attached. There might be unpaid medical bills, credit card debt, or a second mortgage. These must get paid from the estate before you can keep any money from the sale. The executor should identify all debts early in the process.

Sell To How buys houses in Lincoln in as-is condition. This means you skip repair costs, agent commissions, and months of holding costs. You get a cash offer and close in as little as seven days.

When You Don’t Have to Pay Any Tax at All

Many people who inherit property do not owe any federal capital gains tax. Here are the most common situations where you pay nothing.

You sell quickly at or below the inherited value. Remember the stepped-up basis we talked about? If you sell the house for the same price or less than its value when you inherited it, you have no capital gain. No gain means no tax. Most families who sell within six months to a year fall into this category.

The property value dropped. Real estate can go down in value, especially if the house needs major repairs or the market changes. If you inherited a house worth $200,000 and sell it for $180,000, you actually have a capital loss. You cannot use this loss to reduce your other income, but you definitely do not owe tax on the sale.

You lived in the house as your primary home. The IRS lets you exclude up to $250,000 in capital gains ($500,000 for married couples) if you lived in the home as your primary residence for at least two of the five years before selling. Some heirs move into an inherited house for two years to qualify for this exclusion. This works well if the property has increased a lot in value.

The estate was small enough. For federal estate tax purposes, only estates worth over $13.61 million in 2024 owe any estate tax. Almost no one hits this limit. Estate tax is different from inheritance tax and capital gains tax. But it is worth knowing that the federal government does not take a cut of most estates.

You inherited from a spouse. As we mentioned, spouses pay no Nebraska inheritance tax. Plus, if you and your spouse owned the house together, you might already own it outright without any inheritance process at all.

Keep good records of everything. Save the property appraisal from when you inherited the house. Keep receipts for repairs and improvements. Track all costs related to the sale. If you do end up owing taxes, these records help you calculate the correct amount.

Working with a tax professional is smart when dealing with inherited property. They can review your specific situation and identify ways to reduce your tax bill. The cost of hiring a CPA (usually $200 to $500) often saves you much more in taxes.

If you inherited property with siblings or other family members, each person needs to report their own share. The group should agree on the property value and how to split costs. This prevents confusion when everyone files their own tax returns.

Frequently Asked Questions

How long do I have to sell inherited property before owing taxes?

No time limit automatically triggers taxes. You can keep inherited property as long as you want. However, the longer you wait, the more likely the property’s value is to change. If the house goes up in value from when you inherited it, you will owe capital gains tax on that increase when you finally sell. If you sell within the first year, most people owe nothing because the value stays about the same. The stepped-up basis protects you from taxes on all the growth that happened before you inherited the property.

Can I deduct repair costs from my capital gains on inherited property?

Yes, but only certain costs count. You can add the cost of improvements to your basis, which reduces your taxable gain. Improvements are things that add value or extend the life of the house, such as a new roof, a kitchen remodel, or an addition. Regular repairs, such as fixing a leaky faucet or painting, do not count. Keep all receipts and records. If you spend $20,000 on improvements after inheriting a house, you can add that to your stepped-up basis. This means less profit on paper and lower taxes.

What happens if I inherit a house with a mortgage still on it?

You inherit both the house and the debt. The mortgage does not disappear when someone dies. You have three main options. First, you can keep making payments and keep the house. Second, you can sell the house and use the money to pay off the mortgage. Third, you can let the bank foreclose, though this hurts your credit. Most people sell the house to pay off the mortgage and split any remaining money. The stepped-up basis still applies to the full property value, not just the equity. Sell To How can help you sell quickly, even with a mortgage balance, making the process much easier for Lincoln families.