If you were blessed with a house from an inheritance, congratulations! However, tax season is coming up and you may be wondering how to best take care of your tax responsibilities. We’ve compiled some tax tips for inheriting a house that will help make tax season easier on you.
1. Is the Home Sale Tax Exclusion Available to Inherited Property?
Normally, when you sell your property, the tax code allows you to retain up to $250,000 in profit (or $500,000 for married couples filing jointly). That means you won’t have to pay taxes on the first $250,000 (or $500K) of gain from the home’s sale.
However, if you sell inherited property, you are not eligible for the tax exclusion. You must live in the house for at least two years and make it your primary residence to qualify.
The long answer is that you won’t be eligible for the $250,000/$500,000 home sale tax exemption.
The good news is that you will be eligible for the stepped-up basis rules for inherited property. That means you won’t have to worry about losing your exemption, anyway.
2. What Are the Stepped-Up Basis Rules for Inherited Property?
In most cases, the “basis” of a property is its purchase price or cost. However, in the case of inherited real estate, the “stepped-up basis” is the fair market value at death of the owner.
If you’re a first-time seller, it’s critical to understand that some situations may require you to pay more tax than if the home was sold as an investment property. Because your purchase price is higher than the stepped-up basis amount, you may be required to pay more taxes when you sell the house. This isn’t always the case;
If you inherit a property that is worth $200,000 and sell it for more than that amount, you will have a taxable gain. If you sell it for less than that amount, you will have a loss.
3. Is it possible to deduct a capital loss from my taxes if I sell an inherited property?
You are allowed to deduct the loss from your taxes if you acquire and sell a property for less than its market value. This can help you save money on your taxes.
However, you may only deduct $3,000 in losses from your income each year. Any further losses must be carried forward to future years.
Keep in mind that if you live in the home before selling it, it becomes your personal house, and various tax rules apply.
4. What Is the Most expedient Way to Get Rid of a House Inherited from Parents?
Selling a home that you’ve inherited may be quite time-consuming. To go through everything in the house, make repairs, engage a realtor, organize showings, and negotiate offers takes a long time commitment.
The Property Warehouse is the quickest, simplest method to sell an inherited property. Contact us right away to discover how quickly you could receive a cash offer on your inherited house.