Dad's house sold during probate, does basis step up?

[metchy]

I can't figure this out. If my dad had left the house to heirs, we would have a step-up basis. But he left his estate to be divided, so everything was sold and the proceeds are being distributed. Since the house was sold by the estate, does the basis step up to his date of death? His estate doesn't have any other income - no investments, dividends, very little interest, so I'm hoping any capital gains would be taxed at 0%. Do the normal capital gains income brackets apply? Or what are the brackets for estates if they aren't the same? 

This must be a very common scenario and I'm frustrated that it's so hard to figure it out 

[JulieS · Accepted solution]

Yes, the estate gets a stepped-up basis for the house.

In this case, the estate return sells the house and reports the sale on the estate or trust return. The basis of the house in the estate is the value of the property on his date of death, so your gain, if any, should be minimal. 

If you do have a gain, long-term capital gain rates would apply to the gain.