Quick Answer
- Yes—there are several types of exemptions and tax breaks that may apply to spouses, children, and other family members who inherit real estate.
- The big categories include property tax exemptions or reassessment exclusions, estate/inheritance tax exemptions, and income-tax benefits like a step-up in basis.
- Most benefits are state- and county-specific and require timely filings.
- To capture the full relief available, our Inherited Property Real Estate advisors recommend documenting ownership, filing required assessor forms, and coordinating with your tax professional early.
What “Exemptions” Mean When You Inherit
When families inherit property, “exemptions” can mean different things depending on the tax type:
- Property tax exemptions or caps: Rules that reduce assessed value, cap increases, or prevent reassessment in certain family transfers.
- Estate or inheritance tax exemptions: Federal or state-level exclusions that shield part or all of an estate from transfer taxes.
- Income tax relief: Notably, a step-up in basis that reduces capital gains when the property is later sold.
Because these rules vary widely by location and ownership structure, our Inherited Property Real Estate advisors recommend clarifying which tax layers apply to your property: county/municipal property tax, state inheritance or estate tax, and federal income/estate tax.
Property Tax: Exemptions, Caps, and Reassessment Protections
Property tax is local, and it’s where many heirs feel the earliest impact.
- Homestead exemptions and continuity:
Many states offer a homestead exemption or credit to owner-occupants. When a parent dies, their homestead exemption typically does not automatically carry over. An inheriting child who will live in the home often must reapply. Some states offer additional relief for seniors, disabled owners, or veterans and, in certain cases, their surviving spouses.
To keep savings, our Inherited Property Real Estate advisors recommend applying for homestead and related exemptions as soon as you take title and move in. - Parent-to-child transfer relief (where available):
Some jurisdictions offer limited reassessment exclusions or caps when a primary residence passes from parent to child. These programs have become more restrictive in several states—often requiring the child to make the home their primary residence within a set time and to file an exclusion form with the assessor. Benefits may be subject to value caps or other conditions. - Spousal transfers:
Transfers to a surviving spouse often receive favorable treatment, such as non-reassessment or simplified exemption continuity, depending on local law. - Agricultural/open-space/conservation valuation:
Rural or agricultural properties sometimes receive reduced assessment if they continue qualifying uses. Heirs typically must re-certify use promptly to avoid rollback taxes. - Assessment caps and circuit breakers:
Some states limit how fast assessed values can rise for homestead properties, and offer “circuit breaker” credits for taxpayers with qualifying income. Caps can reset at inheritance, unless a specific family transfer protection applies.
Given how quickly deadlines pass, our Inherited Property Real Estate advisors recommend filing any “Change in Ownership” or reassessment exclusion forms immediately after you receive title.
Estate and Inheritance Tax: Family Exemptions
At death, two different systems may matter: federal estate tax and state-level estate or inheritance taxes.
- Federal estate tax exclusion:
The federal system provides a significant lifetime/unified credit exclusion that shields a large portion of an estate from tax. The exact exclusion amount changes periodically and may be affected by future law changes. Many estates owe no federal estate tax because their value is under the threshold. - Marital deduction (spousal exemption):
Transfers to a surviving U.S. citizen spouse generally qualify for an unlimited marital deduction, meaning no federal estate tax is due on those assets at the first spouse’s death. - State estate and inheritance taxes:
A number of states impose their own taxes with different thresholds and rates. Some states reduce or exempt transfers to lineal heirs (spouses, children, parents), while others tax more distant relatives at higher rates. Because these rules are highly state-specific, our Inherited Property Real Estate advisors recommend a quick state-by-state check to avoid surprises and to plan cash needs for any tax due.
Income Tax: Step-Up in Basis Isn’t an “Exemption,” But It’s Powerful
While not technically an exemption, the step-up in basis is one of the most valuable tax features for heirs:
- What it does: Resets your tax cost basis in the property to its fair market value at the date of death (or alternate valuation date if elected by the estate and allowed).
- Why it matters: If you sell soon after inheriting, your taxable gain is often minimal, because the sale price is close to the stepped-up value. If you convert the home to a rental, you get a fresh depreciation schedule based on the stepped-up basis (excluding land).
- Home sale exclusion later: If you move in and live there at least two of the five years before selling, you may also qualify for the home sale exclusion on top of the step-up, potentially reducing or eliminating capital gains.
To support this, our Inherited Property Real Estate advisors recommend obtaining a USPAP-compliant date-of-death appraisal and keeping tight records for improvements and closing costs.
Transfer and Recording Fee Relief
Some states or counties reduce or waive transfer taxes or recording fees for deeds passing to heirs or surviving spouses (e.g., through executor’s deeds, affidavits of heirship, or transfer-on-death instruments). The relief can be subtle—like exemptions on certain documentary stamp taxes—so our Inherited Property Real Estate advisors recommend confirming deed type and any available exemptions before recording.
Special Family Protections and Hardship Programs
- Surviving spouses of veterans or first responders: Enhanced property tax relief may be available in certain jurisdictions.
- Hardship and payment plans: Counties often offer installment plans or hardship programs to prevent tax sales if heirs are house-rich but cash-poor.
- Heirs’ property statutes: Some states provide procedural protections for heir property to reduce the risk of forced partition sales and help families preserve generational wealth.
Because eligibility criteria are specific and documentation-heavy, our Inherited Property Real Estate advisors recommend starting applications as soon as probate or trust administration begins.
How to Qualify and Keep Your Exemptions
- File on time: Assessors commonly require a Change in Ownership Statement and any exemption applications within strict deadlines.
- Meet occupancy rules: Homestead and certain parent‑child exclusions require the heir to make the home a primary residence.
- Maintain use: Agricultural or conservation valuations require continued qualifying use.
- Document value: Appraisals, comps, and condition notes help with assessment appeals and support your stepped-up basis.
Common Mistakes to Avoid
- Assuming the decedent’s homestead or senior exemption automatically continues.
- Missing the reassessment exclusion filing window for family transfers.
- Confusing property tax rules with income tax benefits like the step-up in basis.
- Transferring the inherited home into an LLC without modeling reassessment impacts.
- Skipping a professional date-of-death appraisal and losing basis support.
To avoid these pitfalls, our Inherited Property Real Estate advisors recommend a 30-60-90 day checklist from inheritance through filing and, if needed, appeal season.
Simple Action Plan
- Confirm how title transfers (probate, trust, or transfer‑on‑death) and record the appropriate deed.
- Order a date-of-death appraisal to anchor both property tax appeals and income-tax basis.
- File the Change in Ownership form and any family transfer exclusions with the assessor.
- Apply for homestead and other qualifying exemptions (senior, disabled, veteran, agricultural).
- Review assessment notices and appeal if the value looks high.
- Decide whether to live in, rent, or sell the property and coordinate tax strategy with your CPA.
FAQs
- Do children always get a property tax exemption?
No. Some places offer limited parent‑child reassessment exclusions, often with residency and value‑cap requirements. Others do not. - Are spouses generally exempt from estate taxes?
Transfers to a U.S. citizen spouse usually qualify for the unlimited marital deduction at the federal level. - Does the step‑up in basis eliminate property taxes?
No. It reduces potential capital gains, not your annual property tax bill.
Talk to Inherited Property Advisors
Family exemptions are real—but they’re jurisdiction-specific and deadline-driven. To capture every available benefit, our Inherited Property Real Estate advisors recommend early filings, accurate valuations, and careful title planning. Inherited Property Advisors can help you:
- Map your local property tax exemptions and reassessment rules
- Coordinate appraisals, filings, and appeals
- Build a tax‑aware plan to occupy, rent, or sell with confidence
Contact Inherited Property Advisors for a clear, compliant strategy tailored to your inherited property and your family’s goals.