Quick answer: most probate house sales owe little or no capital gains tax, thanks to the stepped-up federal basis. Any gain that does exist is taxed at Arizona's flat 2.5% rate for 2026 — one of the lowest state rates in the country. See how the numbers change for your own sale in the Arizona probate real estate sale calculator.
Why most probate sales owe little or nothing
A worked example
| Amount | |
|---|---|
| Original purchase price (decades ago) | $95,000 |
| Fair market value on date of death (stepped-up basis) | $350,000 |
| Sale price, 5 months after death | $356,000 |
| Taxable gain | $6,000 |
| Arizona tax on that gain (2.5%) | ≈ $150 |
Illustrative example. The $255,000 of appreciation before death is never taxed, because of the stepped-up basis.
One of the lowest flat rates in the country
Whatever gain does survive the stepped-up basis gets taxed as ordinary income under Arizona's flat 2.5% rate for 2026 — adopted in 2023, replacing the state's old graduated brackets. Arizona levies no local or county income tax anywhere, so 2.5% plus federal tax is the entire state-and-local picture, unlike states where a city adds its own layer on top.
If an heir moves in first
The federal Section 121 home-sale exclusion can shelter up to $250,000 of gain for a single filer, or $500,000 for a married couple filing jointly, if the seller owned and lived in the home as a primary residence for at least two of the five years before the sale.
Who actually reports the gain
Whoever sells and realizes the gain reports it. If the estate itself sells the house before distributing it, the estate reports the gain on its own fiduciary income tax return. If the house passes to an heir first and that heir later sells it, the heir reports the gain individually.
A local probate attorney can review your estate — many offer a free consultation.
Arizona's flat rate applies identically whether the sale closes in Maricopa, Pima, or any of the state's other counties — there's no local income tax anywhere to add on top.