Tax Consequences When Selling an Inherited House

Tax Consequences When Selling an Inherited House

Inheriting a home is a pretty sweet experience, yet bitter at the same time… You are left with great property value you can use to improve your life, but you are still mourning the loss of a loved one. So you may ask yourself at this point “what are the tax consequences when selling a house I inherited ?” The tax laws have been designed in a way they will not add any more burden unto you upon inheriting the property. This implies that the financial consequences are less daunting than what you would expect, which is good news for you.

 

Calculation of basis

In order to comprehend how you’ll be taxed having inherited a home, you need to know how basis is calculated. “Basis” means an asset’s cost for tax purposes. To determine whether you have a profit or less when you sell an asset, you subtract its basis from the sale price. If you have a positive number, you have a gain. If you have a negative number, you have a loss.

 

When a person dies, the value or basis of their property is increased to the market value as at the time of their death. This is called the “stepped-up basis.” For instance, if a person purchased a home 20 years ago for $25,000 but it was worth $100,000 at the time of their death, that property would be valued at the latter amount for the purpose of calculating capital gains. Redfin has additional resources that may be helpful in understanding this piece.

 

Taxation of gains/losses

Capital gains or losses refer to what you earn from selling property that you use for either personal or investment purposes. Such can be houses, furniture and many more things. If you decide to sell an inherited home, that sale is regarded as capital gain or loss for the purpose of income tax.

 

In most cases, for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. However long the duration you have been in ownership of an inherited home, any gain or loss will still be treated as long-term.

Reporting the sale

You might have to go through the probate process if your relative died without a will. Once the court authorizes you to proceed, you may ready the house for sale. If there are any other individuals involved in the inheritance, you should first agree with each other on that decision.

 

Upon selling an inherited home, you have to report it for the income tax purposes. You should first calculate your capital gain or loss. This is done by subtracting the basis from the sale amount. You should then report that amount to the necessary tax authorities.

In Summary

Having an inherited home can be stressful given the fact that you have new property to take care of and pay taxes for it at the same time.

 

If you want to know more about the tax consequences of selling an inherited house, we would be happy to discuss it with you in more detail.

 

In addition, you might consider selling the property to an investor for a fast, easy and private sale.

 

Visit our About page or How it Works to learn more.

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Jake Knight

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Jake Knight

Jake Knight has been a residential real estate investor since 2016. He specializes in acquiring and renovating houses in the Bay Area, Sacramento, eventually expanding to over 15+ states. Jake’s prior experience in lending, going back to 2003, laid the foundation for solving complex real estate issues.

Drawing upon his background in assisting sellers with the task of transitioning from a home they have lived in for decades, Jake launched a “senior move management” business in 2021. This company provides valuable support to seniors during the process of packing, coordinating their moves, and downsizing as they transition into senior living communities.

In 2022, Jake expanded his services by becoming a licensed real estate agent in California, providing comprehensive solutions to his seller clients.

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On the other hand, there are some sellers who need a custom solution due to either the property’s condition or the seller’s personal situation, or a combination of the two.

When the property is in really bad shape, they’re likely going to sell to an investor, so it may make sense to save money on commissions and find their own investor.

Some examples of personal situations that we can help with are: hoarding, pre-foreclosure or other financial issues that require a fast home sale, house with non-paying tenants or squatters, severely delinquent property taxes, homeowners who want to rent back the home longer than normal, or sellers who value privacy and/or are embarrassed by their home.

If your seller lead meets these criteria, you should propose the idea of making an introduction to me. You can simply suggest to them that your partner or colleague buys houses and ask if they are interested in speaking with me. Remember, you are not performing real estate agent duties. See our disclaimer below. The main thing to keep in mind at this point is to qualify them as a good fit or not. I can help you with the documentation and process things.