Inherited a Home in Texas? Watch Out for This Tax Trap

By David Pannell

David Pannell is the Managing Broker and founder of Cities Real Estate, a forward-thinking brokerage based in Fort Worth, Texas. A licensed Realtor since 2005 and a broker since 2010, David is known for his expertise in helping families sell homes quickly, especially those navigating the complexities of probate and inherited property.

Nobody wants to think about taxes when they’re dealing with a loss in the family, but if you’ve inherited a home in Dallas-Fort Worth, there’s a financial reality most families don’t find out about until it’s too late.

I’ve closed over 250 probate and estate sales in 21 years, and the pattern is always the same. Before I go any further, I’m not a CPA or an attorney. I’m a real estate broker sharing what I’ve learned from working with these families, and I always recommend consulting your own tax professional for your specific situation.

When the original homeowner had a homestead exemption, their taxable value was capped at 10% annual increases. But the moment that the owner passes and the property transfers through probate, the exemption is gone. The county reassesses at full current market value, no cap, no protection. A home taxed on decades of protected value is suddenly taxed at today’s rate.

I helped a family, the Hendersons, sell a property in the Meadowbrook area of Fort Worth last year. Their mom bought the house in the 1940s for around $80,000 and had it paid off. Three adult kids grew up there and weren’t ready to let it go, so they decided to rent it out for a year.

What they didn’t realize was that when the property transferred out of their mom’s name, Tarrant County reset the value to around $380,000. The rental income went straight to the tax office. Nobody had warned them.

That story plays out more often than it should. There’s a federal tax advantage called the stepped-up basis that can work in your favor if you understand it. When you inherit a property, the IRS resets the cost basis to fair market value on the date of death. If the home was bought for $80,000 and it’s worth $380,000 when the owner passes, your starting basis is $380,000. You only owe capital gains on appreciation after that date. Texas has no state inheritance tax, and no state estate tax, and the federal estate tax only applies to estates over $15 million in 2026.

But that clock starts ticking immediately. Every month, the home appreciates beyond the date of death, you’re building capital gains exposure. And if you’re paying full-rate property taxes on a home where the rent doesn’t cover the bill, you’re losing from two directions. Texas does have a 20% circuit breaker cap for non-homestead properties, but it still allows significant increases and is set to expire at the end of 2026.

One more thing every heir should know: you have the right to protest the assessed value. Roughly 70% of Tarrant County homeowners who file a protest walk away with a lower number, and that rate is even higher for inherited properties with deferred maintenance. We filed a protest for the Hendersons, ran the numbers on holding versus selling, and walked them through exactly what the capital gains exposure looked like month by month. They decided to sell because the full picture made it the right call for their family.

Watch my video for the full breakdown, or jump to the sections that matter most using the timestamps below:

00:00 — Introduction

01:17 — The Henderson Story

02:43 — The Tax Reset

03:37 — Inheriting Property

05:03 — Capital Gains

06:55 — Danger of Waiting

08:34 — Right to Protest

10:00 — What We Did

12:05 — Reach Out

If you’ve inherited a home in the Dallas-Fort Worth area and you’re trying to figure out whether to keep it, rent it, or sell it, I’d love to have a real conversation and an honest look at the numbers. Schedule a call with me here:citiesrealestate.com/strategy-session