Any tax experts out there tonight?

Question

We inherited some property that was sold (against our wishes--long story) for about $110,000. The property was appraised at $81,900. Do we pay taxes on that amount under any tax law (i.e. inheritance tax, estate tax)? I really HATE talking to the IRS, therefore have chosen to put my fate in your hands.

Answer 1

The rules for estate taxes are mixed in with gift taxes. Any gift or sale of property within one year before death is automatically part of the estate of the deceased. Any part of the estate sold after death but before probate has closed is also part of the estate transfer. (There is a provision for small gifts to be exempted up to an annual limit.)

For any estate worth less than $3 million from 2006-2008 (or $2.5 million from 2004-2005), there are no taxes on the gross amount received.

The only part of an estate that you would have to pay taxes on is the income generated by it, capital gains, rents, annuities, interest, etc. In your case, there is no capital gain because an appraisal doesn't count as a real value, it's just an estimate. All property in the estate transfers to the new owners at "fair market value at time of death" according to the tax code.

"Market value" is defined as whatever a reasonable buyer would pay a reasonable seller, and the best way of estimating current market value for anything is to sell the damn thing. That establishes its true worth, and since the property cost you nothing, your own cost basis becomes the market value. The only exceptions to this rule are those properties that have a clear change in value, such as stocks and bonds which are sold daily to establish verifiable market values.

Also, if you have a state income tax, you probably have a state estate tax, as well. For most states (if not all), if you don't owe federal estate taxes, you won't owe the state either.

(After reading the answers given above, I modified my answer to clarify some of their points.)

Answer 2

I will assume this was some real estate and that when you inherited it, it was appraised at $81,900. Later it was sold for $110,000.

You do not pay federal income tax on the $81,900. You have a capital gain of $28,100. All capital gains from inherited property are long-term, so the highest rate this can be taxed is 15%. Federal income tax due on this sale of inherited property will be at most $4,215.

If this came from a large estate (millions of dollars), the estate likely paid the estate tax. Depending on the state you live in, there may be inheritance taxes due. If your state has income tax, you will pay state income tax on the gain from the sale.

Answer 3

There won't be income tax on inherited property, except for any appreciation after the death of the person who willed it to you. An appraisal as of the time of death, and payment of any inheritance taxes due, should have been taken care of by the executor. Unless the estate was huge, there probably won't be any federal inheritance tax.

State laws differ, so any state taxes would depend on where you live.

Answer 4

If I read your question correctly you will have to pay tax at the capital gain rate on $28,100 (the difference between the appraised amount at the date of death and the sales price). You can always go to www.irs.gov and do general research without talking to anyone from the IRS.

Answer 5

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Answer 6

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