To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of inherited property is generally one of the following:
The fair market value (FMV) of the property on the date of the decedent's death.
The FMV of the property on the alternate valuation date if the executor of the estate chooses to use alternate valuation. See the Form 706 Instructions, United States Estate (and Generation-Skipping Transfer) Tax Return.
If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.