Will we owe capital gains tax when we sell our parents' house?
Usually far less than you fear — often nothing. Inherited property comes with a stepped-up basis: for tax purposes, the house's cost resets to its value on the day your parent died.
What that means in practice: you're only taxed on appreciation after the death, not the decades before. Say the house was worth $400,000 the day your mom passed and it sells for $410,000 a few months later — the taxable gain is $10,000, not the $370,000 it grew since 1978. Sell reasonably soon and the gain is often close to zero. Minnesota follows the federal treatment here. The thing that protects you is documentation: a date-of-death appraisal that proves the stepped-up value. A CPA should bless your specific picture — I'm not one, and this isn't tax advice.
So don't let tax fear rush or stall the family. Get the appraisal, keep the paper, and decide on your own schedule.
I wrote this answer, and I stand behind it. I'm Chris Deutsch, a Minneapolis Realtor (MN #20382264). Twenty-five years of walking these neighborhoods, checking basements, and sitting across kitchen tables from people making exactly this call. I re-check every answer and date it — this one was last verified .
If your situation is more specific than the market, that's the one worth talking through. Email me at chris@lakesarearealty.com.