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Money received from the sale of inherited property is generally not considered taxable income in the traditional sense. However, the sale of such property is usually treated as the sale of a capital asset, which means it may be subject to capital gains (or loss) treatment.
According to IRC §1014, the basis of property acquired from a decedent is its fair market value (FMV) at the date of the decedent's death. This means that if the property is sold soon after the date of death, there is usually little or no gain to account for, as the sale price is likely to be close to the FMV at the date of death.
If the property is sold for more than its basis (FMV at the date of death), the difference is considered a capital gain and is subject to capital gains tax. Conversely, if the property is sold for less than its basis, the difference is considered a capital loss, which can be used to offset other capital gains.
Therefore, while the money received from the sale of inherited property itself is not taxable income, any capital gain resulting from the sale is taxable. The gain or loss should be reported on Schedule D (Form 1040), Capital Gains and Losses, and on Form 8949, Sales and Other Dispositions of Capital Assets.
Sources:
Publication 525 (2023)
§ 1014. Basis of property acquired from a decedent
Publication 559 (2023)
Publication 551 (12/2022)
