Inherited property gets a stepped-up basis and long-term treatment no matter how long you have owned it. Here is the line-by-line math, and what Tennessee does and does not tax.
Federal long-term capital gains tax on a $2,000 gain, at each of the three rates that apply depending on your income and filing status:
Inherited property gets this stepped-up basis and is treated as a long-term holding no matter how long you owned it, even if you sell the week you inherit it. Verify at IRS Publication 551, Basis of Assets, Publication 544, Sales and Other Dispositions of Assets and Topic no. 409, Capital gains and losses.
No inheritance tax applies. Tennessee repealed its inheritance tax for anyone who died in 2016 or later. Verify at tn.gov, inheritance tax.
No state income tax applies to this gain either. Tennessee has no general income tax. Its former Hall tax reached only interest and dividends, never capital gains on real estate, and it was fully repealed for tax years beginning January 1, 2021. Verify at tn.gov, Hall income tax.
An estimate, not tax or legal advice.
Without the step-up, you would owe tax on everything the house gained in value since whoever bought it first paid for it, decades of appreciation included. The step-up resets that clock to the date of death, which is why most inherited houses sell with a small gain or a small loss rather than a large one.
It does not know your tax bracket, so it shows the gain at all three federal rates instead of guessing which one applies to you. It also does not cover a house held as a rental with depreciation already claimed, or an estate large enough to owe federal estate tax, both of which change the math.