The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death. Example: Jean inherits a house from her father George. He paid $100,000 for it over 20 years ago. Her tax basis in the house is $500,000.

When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption.

Long-term capital gains are gains on assets you hold for over a year. They're taxed at a separate rate. Depending on your income tax bracket, your tax rate on long-term capital gains could be 0%. Even those in the top income tax bracket pay long-term capital gains rates that are lower than their income tax rates.