Real Estate · Estate Administration
Selling Inherited Real Estate in Pennsylvania: Tax, Title, and Timing
When Pennsylvania real estate passes through a decedent’s estate, the sale involves three overlapping legal frameworks: probate administration under 20 Pa.C.S. § 3351, which determines who has authority to sell; Pennsylvania inheritance tax under 72 P.S. § 9101 et seq., which must be addressed before clear title can transfer; and federal capital gains rules, which apply a stepped-up basis to inherited property that eliminates most capital gains on appreciation that occurred during the decedent’s lifetime. Missing any of these frameworks creates title defects, tax liability, or both.
Families selling inherited property frequently encounter problems they did not anticipate: a title company that will not insure until the inheritance tax return is filed, a buyer who objects to a fiduciary deed, or a capital gains calculation that fails to account for the stepped-up basis and overstates the taxable gain. Each of these problems has a legal solution. Each is easier to address before the closing table than at it. Understanding the authority to sell, the tax obligations, and the title mechanics before listing the property avoids the most common and expensive errors in inherited real estate transactions.
Pennsylvania inheritance tax creates a lien on inherited real estate from the date of death. Our Estate Planning and Probate and Real Estate practices coordinate the tax, title, and probate requirements so inherited property transfers without defect.
Pennsylvania inheritance tax is a lien on inherited real estate from the date of death. A title company will not insure a sale without evidence that the tax has been addressed — either paid, or covered by a bond or agreement with the Department of Revenue.
Call 412-351-4422 or contact our office before listing inherited property — the tax lien issue is best resolved before a buyer is under contract.
Who Has Authority to Sell Inherited Property
Authority to sell estate real estate in Pennsylvania comes from the will, the statute, or a court order. When the will contains an express power of sale, the executor can sell without court approval. Most well-drafted wills include this language. When the will is silent or does not exist, the executor or administrator may still sell under 20 Pa.C.S. § 3351 when the sale is necessary to pay debts, taxes, or administration expenses, or when all beneficiaries consent. Without express authority and without unanimous consent, the executor must petition the Orphans’ Court for approval to sell.
The deed conveying inherited property is a fiduciary deed — signed by the executor or administrator in their representative capacity, not as the individual. The deed must identify the fiduciary’s authority: typically Letters Testamentary issued by the Register of Wills. A title company will require a current short certificate confirming that the executor’s appointment is still valid and that no revocation has been recorded. Short certificates are issued by the Register of Wills at a nominal fee and expire after sixty days in most counties. Ordering them too early creates a timing problem at closing.
Pennsylvania Inheritance Tax and the Real Estate Lien
Pennsylvania inheritance tax attaches as a lien on real property from the date of the decedent’s death under 72 P.S. § 9145. The lien secures the Commonwealth’s interest in the tax owed based on the property’s value and the relationship between the decedent and the beneficiary. Tax rates are: zero percent for a surviving spouse, 4.5 percent for children and lineal heirs, 12 percent for siblings, and 15 percent for all others. The inheritance tax return (REV-1500) is due nine months from the date of death, but a 5 percent early-payment discount is available if tax is paid within three months.
A title company insuring the sale of inherited property must confirm that the inheritance tax lien has been satisfied or will be satisfied from closing proceeds. In practice, this means the estate must have filed the REV-1500 and either paid the tax or entered into an arrangement with the Department of Revenue. If the estate has not addressed the inheritance tax before the property goes under contract, the closing will be delayed while tax filings are completed. The inheritance tax lien does not disappear if the property is sold informally — it follows the property and encumbers the buyer’s title until discharged.
Federal Capital Gains and the Stepped-Up Basis
Inherited property receives a stepped-up basis under 26 U.S.C. § 1014 equal to the fair market value of the property on the date of the decedent’s death. If the decedent purchased a home in 1975 for $40,000 and the property was worth $400,000 at death, the heir’s basis is $400,000 — not $40,000. A sale at $400,000 produces no capital gain. A sale at $450,000 produces a $50,000 gain, not a $410,000 gain. The stepped-up basis eliminates the capital gains tax on decades of appreciation that occurred during the decedent’s lifetime. This is one of the most significant tax benefits available to heirs and one of the most frequently miscalculated.
The stepped-up basis applies to the decedent’s share of the property. For property held as tenants in common, the decedent’s percentage interest receives the step-up; the surviving co-owner’s share does not. For property held as joint tenants with right of survivorship between spouses in a community property state, a full step-up applies to both halves — but Pennsylvania is not a community property state, so only the decedent’s half receives the step-up. Estates with significant real property holdings should document the date-of-death values carefully. The appraisal supporting the inheritance tax return serves double duty: it establishes the stepped-up basis for federal capital gains purposes as well.
Title Issues That Arise in Inherited Property Sales
Inherited property sales surface title problems that routine residential transactions do not encounter. A prior owner whose estate was never probated leaves a gap in the chain of title that requires a corrective proceeding before marketable title can be established. A deed that was recorded in the wrong county, a name discrepancy between the decedent’s deed and their death certificate, or a lien that attached during the estate administration all require resolution before closing. Title companies in Pennsylvania will not insure a gap in the chain of title — they require documentary evidence of every transfer back to a point of good title.
When multiple heirs inherit property through intestate succession and no estate was opened, each heir holds an undivided interest without a deed to document it. Selling the property requires either opening an estate and administering it through probate, or obtaining a deed of distribution from all heirs that memorializes the transfer. When heirs cannot agree on whether to sell or how to divide proceeds, a partition action in the Court of Common Pleas provides the statutory remedy. For disputes among co-owners of inherited property including title defect resolution, see our page on inherited property and family real estate problems in Pennsylvania.
Frequently Asked Questions About Selling Inherited Real Estate in Pennsylvania
Do I have to pay capital gains tax when I sell inherited property in Pennsylvania?
Usually not, or very little. Inherited property receives a stepped-up basis under 26 U.S.C. § 1014 equal to its fair market value on the date of death. Capital gains are calculated from that stepped-up value, not from the decedent’s original purchase price. If you sell soon after inheriting for approximately the date-of-death value, the taxable gain is minimal or zero.
Does Pennsylvania inheritance tax have to be paid before I can sell the property?
The inheritance tax lien must be addressed before a title company will insure the sale. This typically means filing the REV-1500 return and either paying the tax or making arrangements with the Department of Revenue. Estates that have not addressed the inheritance tax before going under contract will experience closing delays.
Can an executor sell estate property without the heirs’ approval?
In most cases, yes — if the will grants a power of sale or the sale is necessary to pay estate debts and taxes. If the will specifically devises the property to a named heir, the executor’s authority to sell is more limited. When authority is unclear, the executor should petition the Orphans’ Court for approval before proceeding.
What is a fiduciary deed in Pennsylvania?
A fiduciary deed is signed by the executor or administrator in their representative capacity on behalf of the estate. It identifies their authority — typically Letters Testamentary from the Register of Wills — and conveys title from the estate to the buyer. Title companies require a current short certificate confirming the fiduciary’s appointment before insuring a sale.
What happens if there are multiple heirs and one refuses to sell?
If the property passed through the estate and the executor has authority to sell, a single heir’s objection does not block the sale unless the property was specifically devised to that heir. If multiple heirs hold undivided interests as tenants in common and cannot agree, any co-owner can file a partition action in the Court of Common Pleas to force a sale and division of proceeds.
For related topics, see our pages on estate administration and probate in Pennsylvania, Pennsylvania inheritance tax, inherited property disputes, and partition actions in Pittsburgh.