The short answer
Most heirs owe little or no capital gains tax on a quick sale. Your basis is the home’s fair market value on the date of death, not what the owner paid. Maryland inheritance tax exempts close relatives. Estate tax hits only large estates.
Those are three separate taxes that get confused constantly. Different rules, different offices, different people who owe them. Sorting out which one applies to you is most of the work.
| Tax | Triggered by | Who deals with it |
|---|---|---|
| Federal and state capital gains tax | Selling the house for more than your basis | You, on your own return |
| Maryland inheritance tax | Your relationship to the person who died | The Register of Wills |
| Maryland estate tax | The total size of the estate | The Comptroller of Maryland |
Stepped up basis is why most of these sales are close to tax free
The IRS states that the basis of property inherited from a decedent is generally the fair market value of the property on the date of the decedent’s death. See the IRS page on gifts and inheritances.
Work through what that means. Your mother bought the rowhome in 1974. What she paid is irrelevant to you. Whatever the house was worth the day she died becomes your starting point. Sell a few months later at roughly that value and your taxable gain is small or nothing. Decades of appreciation during her lifetime are not taxed to you.
The gain that can show up is the appreciation after the date of death, minus your selling costs. On a sale in the same year that is usually a modest number or zero. Hold the house for five years and the calculation looks very different.
Get a date of death value in writing
This is the most useful thing you can do early. A written appraisal as of the date of death supports your basis if anyone asks later. A number you guessed at two years afterward is much weaker. For a current market read alongside it, see what your Baltimore house is worth and what it is worth as is.
Maryland inheritance tax, and who is exempt from it
Maryland inheritance tax is not about the size of the estate. It is about who is receiving, and it is collected by the Register of Wills.
Per the Register of Wills inheritance tax page, a collateral rate of 10 percent applies to property passing to persons or organizations not identified as exempt. The exempt list is broad, and it covers most of the families reading this page.
- A spouse, child, grandchild, great grandchild, stepchild, parent, or grandparent, for decedents dying on or after July 1, 2000.
- Siblings, for decedents dying on or after July 1, 2000.
- The spouse of a decedent’s child.
- A surviving registered domestic partner, for decedents dying on or after October 1, 2023.
- Organizations exempt from taxation under section 501(c)(3).
- State, county, and municipal corporations, and certain qualifying family owned corporations.
Short version for most heirs: if you are a child, grandchild, sibling, parent, or spouse, Maryland inheritance tax does not apply to you. A niece, nephew, cousin, friend, or unmarried partner who is not a registered domestic partner is a different conversation, and worth having with an attorney first.
Maryland estate tax is a different thing entirely
Estate tax is about the size of the estate, not your relationship to anyone. Per the Comptroller of Maryland guidance on the Maryland estate tax, a Maryland estate tax return is required where the federal gross estate plus adjusted taxable gifts plus certain Maryland QTIP property equals or exceeds the exemption for the year of death, which is $5,000,000 for deaths in 2019 and after.
The return is filed with the Comptroller within nine months after the date of death, and a penalty of up to 10 percent applies to tax not paid by the due date. The credit cannot exceed 16 percent of the amount by which the taxable estate exceeds the exemption.
For a Baltimore rowhome and a modest bank account, none of this applies. It matters when there is significant life insurance, retirement money, a business, or several properties.
If you live out of state, plan for withholding at settlement
This one surprises people, and it is a prepayment rather than a tax. Maryland collects income tax withholding at deed recording when a nonresident sells Maryland real property. Per a Comptroller of Maryland tax alert on nonresident withholding, effective July 1, 2025 the rate is 8.75 percent for nonresident individuals and 8.25 percent for nonresident entities.
Read that carefully. It is withheld against what you might owe, not what you definitely owe. If your gain is small because of stepped up basis, you may get most or all of it back. The Comptroller has a process to apply in advance for a certificate of full or partial exemption using Form MW506AE, before settlement rather than after. Raise it with your closing agent early.
The same alert notes an additional 2 percent Maryland tax on net capital gains for individuals whose federal adjusted gross income exceeds $350,000, with an exclusion for a primary residence sold for less than $1,500,000. An inherited house you never lived in is generally not your primary residence, so a high income heir should ask about this specifically.
What to bring to your tax preparer
- The date of death and a certified death certificate.
- A written date of death value for the house.
- The settlement statement from the sale.
- Receipts for anything you spent on the property after the date of death.
- Whether the estate sold the house or the heirs sold it after distribution, which changes who reports the sale.
That last point matters more than people expect, so decide it on purpose. Selling costs come off the gain too, which is why a sale with no commission and no repair credits can look different on paper than a traditional listing. Closing costs when you sell in Baltimore breaks those out.
Where the house fits into all this
Taxes are usually not what makes an inherited Baltimore house hard to deal with. Distance, condition, and family are. Our full guide to selling an inherited Baltimore house covers the rest, the Maryland probate process explains the sequence, and you can usually sell before probate closes.
If you want a number to put in front of the family, you can get a real valuation with no obligation. If the family is split on whether to sell at all, read what to do when siblings will not agree. And if you are unsure whether to fix anything first, do you have to make repairs before selling answers that honestly.
Before you act on this
This page is general information about how these processes work in Maryland. It is not
legal, tax, or financial advice, and your situation may turn on details this page cannot
know. Talk to a Maryland attorney or a licensed tax professional before you make a decision
you cannot reverse. If you are facing foreclosure, you can also speak with a HUD approved
housing counselor at no cost.
Questions people ask
Do I pay capital gains tax if I sell right away?
Usually very little or none. Your basis is the fair market value on the date of death, so only appreciation after that date, minus selling costs, is taxable. A sale within a few months of death typically produces a small gain or none at all.
Is Maryland inheritance tax the same as estate tax?
No. Inheritance tax depends on your relationship to the person who died and is collected by the Register of Wills. Estate tax depends on the total size of the estate and is filed with the Comptroller of Maryland. An estate can owe one, both, or neither.
Am I exempt from Maryland inheritance tax?
If you are a spouse, child, grandchild, great grandchild, stepchild, parent, grandparent, or sibling of the person who died, the Register of Wills lists you as exempt. Nieces, nephews, cousins, and friends are generally not exempt and face the collateral rate.
Why did the title company hold back money at closing?
If you are a nonresident selling Maryland real property, the state collects income tax withholding at recording. It is a prepayment, not a final bill. You can apply in advance for a certificate of full or partial exemption, or reconcile it on your Maryland return.
Do I need an appraisal even if I am selling fast?
It is worth getting a written date of death value regardless. That figure supports your basis if the sale price is ever questioned. It costs a few hundred dollars and it removes an argument you would otherwise have to make from memory years later.