In America, what does inheritance tax entail on real estate property?

Question

Do you have to pay it immediately after you inherit the property? What if you sell the property, do you still have to pay the tax? Can you make payments on the tax if you don't have the money to pay it immediately? What if you didn't know you were going to inherit property, and you don't have the money to pay the tax?

Answer 1

It depends upon the will and the type of property.

I had this very thing occur when my mother passed away.

When someone dies, the estate actually becomes another person, and is responsible for paying estate taxes, with certain exceptions, like IRAs that pass directly to heirs.

If you are designing a will and it involves a house, I'd suggest that it state the property is to be sold, especially if there are multiple heirs. This stops all squabbling.

If you have a business, then you can place it in a corporation and pass the shares or you can form a Partnership, in which case the business passes to the partner.

Also, if the property passes to an heir directly, the basis is the original purchase price of the decedent. If the heir decides to sell later, then they may have capital gains taxes to pay. Of course, if the heir lives in the property for 2 years, there are exemptions.

Now if you have a family farm, this becomes problematic with multiple heirs, as each may want it.

By directing it to be sold, any particular heir may purchase the property with our regard to the other heirs. This of course assumes there is no spouse, in which case the property would pass without probate.

The funny thing is, if the decedent doesn't have any real property, you don't need to probate. I've see this done by a family when the decedent didn't have a car and rented an apartment.

Good Luck

Answer 2

The tax is paid by the estate before the decedent's property is conveyed to the heirs; the heirs are not responsible for paying any tax. All assets (real or personal) are treated the same way; if assets are illiquid, they must be appraised so that the appropriate amount of tax may be determined. If the estate does not have enough liquid assets to pay the tax, some of the illiquid assets must be sold. A reasonable time is allowed for doing all of this.

Answer 3

you only have to pay the tax if you claim it on your taxes