Federal Stepped-Up Basis in Florida

When you inherit property in Miami, your income tax basis resets to the fair market value at the date of death. That’s the federal rule under IRC Section 1014, and it applies regardless of what the original owner paid for the property or how long they held it.

Your grandmother bought a waterfront condo in Coconut Grove in 1995 for $180,000. She dies in 2025 when it’s worth $1.1 million. Your basis is $1.1 million. If you sell for $1.15 million, you have a $50,000 gain — not a $970,000 gain. That single rule saves you roughly $100,000 in federal capital gains taxes.

Since Florida has no state income tax, there’s no state capital gains tax layer on top. In New York, that same sale would generate an additional $5,000+ in state and city taxes on the $50,000 gain. In California, even more. Florida: zero.

No State Estate Tax — A Real Advantage

Florida repealed its state estate tax in 2004 and has not brought it back. The only estate tax Miami heirs need to worry about is the federal one, which has a $13.99 million exemption per person in 2025 ($27.98 million for married couples with proper planning).

Compare that to New York, where the state estate tax kicks in at $7.16 million with a cliff that can generate a $500,000+ tax bill on estates barely over the threshold. Or Massachusetts, where the exemption is just $2 million. Florida’s absence of a state estate tax is one of the primary reasons high-net-worth individuals relocate here — and it’s a real dollar benefit for families who inherit property in the state.

The federal exemption is scheduled to drop to roughly $7 million per person after December 31, 2025, when the Tax Cuts and Jobs Act sunsets. Even if that happens, Florida still won’t add a state estate tax on top.

Florida’s Homestead Exemption on Inherited Property

Florida’s homestead exemption offers two big benefits: a reduction of up to $50,000 in assessed value for property tax purposes, and the Save Our Homes cap that limits annual increases in assessed value to 3% or the Consumer Price Index, whichever is lower.

When a homestead property owner dies, the exemption and the SOH cap do not automatically transfer to the heir. The property gets reassessed to market value. However, if the heir makes the inherited property their primary residence and files for homestead exemption, they start building their own SOH cap going forward.

There’s one significant exception: surviving spouses. If the surviving spouse already lives in the homestead property, they can retain the existing homestead exemption and SOH cap without reassessment. That protection can be worth tens of thousands of dollars per year in a market like Miami, where assessed values from 15 or 20 years ago bear almost no resemblance to current market prices.

Selling Inherited Property in Miami

When you sell inherited Miami property, your tax obligation is straightforward compared to other states. The gain is the difference between the sale price and your stepped-up basis (the date-of-death fair market value).

Federal tax rates on that gain:

• 0% rate if your total taxable income is under $47,025 (single) or $94,050 (married filing jointly) in 2025
• 15% rate for income between those thresholds and $518,900 (single) or $583,750 (married)
• 20% rate above those amounts
• 3.8% Net Investment Income Tax if your modified AGI exceeds $200,000 (single) or $250,000 (married)

No Florida income tax applies. Period. A Miami resident selling inherited property with a $200,000 gain pays roughly $30,000 to $47,600 in federal taxes depending on their income level. The same sale in California could cost an additional $18,000 to $26,600 in state taxes. That difference funds a nice vacation — or gets reinvested.

Depreciation on Inherited Rental Property

If you inherit a rental property in Miami — say a duplex in Little Havana or a condo in Brickell that’s been leased out — the stepped-up basis resets your depreciable basis too. You start a brand-new 27.5-year depreciation schedule based on the property’s fair market value at the date of death (minus land value).

That’s a meaningful tax benefit. If the prior owner had been depreciating the property for 20 years, their remaining depreciable basis was close to zero. Your basis resets to the full current value, giving you fresh depreciation deductions that shelter rental income from federal tax.

Watch out for depreciation recapture when you eventually sell. Any depreciation you claim (or could have claimed) gets taxed at a 25% rate on sale, regardless of your ordinary income bracket. That said, the depreciation benefit usually outweighs the recapture cost, especially if you hold the property for many years and benefit from the annual deductions along the way.

What Miami Heirs Should Do

Get the appraisal done within 60 to 90 days of the death. Miami’s real estate market moves fast, and waiting a year to get a date-of-death appraisal means the appraiser is working from older comparables and the valuation becomes harder to defend. For condos, the appraiser should pull comparable sales within the same building or complex if possible. For single-family homes, focus on the same neighborhood and similar lot size.

Decide quickly whether you’ll live in the property, rent it, or sell it. If you plan to make it your primary residence, file for homestead exemption with the Miami-Dade Property Appraiser as soon as possible. The filing deadline is March 1 of the tax year, though late filings can sometimes be accepted.

If multiple heirs inherit the property jointly, figure out the ownership arrangement before anyone moves in or starts collecting rent. A disagreement between siblings about whether to sell or hold a Coral Gables house is one of the most common estate disputes we see — and it’s easier to resolve when the tax and financial picture is clear from the start.