Do I need to pay inheritance tax on real estate properties?

Question

After my dad dies, I have sold my dad's 14 rental houses and distributed the money to my siblings (and myself). Do I need to pay pay inheritance tax on what I've received from those houses? Its about $75K in hand.

I understand I DO need to pay taxes on rental incomes.

Thanks!

Whats capital gains taxes??

We live in Texas.

Answer 1

Well, Texas has no state income tax, so you shouldn't have to worry about state income taxes.

Who was handling the estate though? Depending on the value of the 14 rental house's there might have been federal estate taxes owed (federal estate tax kicks in if net value of estate is more than $2,000,000) and Texas has no estate tax on people who die after 1/1/2005.

As far as rental income goes, you would not pay taxes on rental unless you were the one who received the rental income. If your dad's estate was receiving the rental income his estate would need to file a form 1041 to report the income and expenses earned by his estate after his death until everything that earned income was closed out and monies or property distributed to the heirs.

If you sold the houses while they were still in your dad's name then any gain on the house's would need to be shown on the 1041 as Capital Gain and taxes would be paid on the gain. When your dad died the 14 rental houses should have been appraised as to what they were worth on his death. That would establish the cost basis for selling them in the future. The difference between the cost basis and what they were sold for would be either capital gain (if sold for more than the cost basis) or capital loss (if sold for less than the cost basis). If sold at a gain capital gains taxes would either need to be paid by the estate on the Form 1041 or the gains could be passed through to you and your siblings and recognized on your personal tax returns.

This sounds like this is more complex then being able to be solved through Yahoo Answers. If you want, feel free to add me as a contact and I can help you make sure that everything is done properly.

Either that or contact a local CPA/Tax Preparer in your area and let them figure out and file the returns for you. It sounds like with 14 rental houses you may have estate tax issues possibly depending on the total value of the 14 houses.

Answer 2

If that was his entire estate, you don't even have to file an estate tax return.

But, you do need to file an income tax return for the Estate of Your Dad. The earnings (rental income) and the sale of the properties from the date of death until the date the asset is transferred to the beneficiaries is reported on the 1041 for the Estate. You individually only report your income or sale of property AFTER the estate transfers it to you.

It appears you sold the assets prior to distribution and then distributed the cash. Therefore, the rental income and the sale (cap gains) would be reported on the 1041, which is the income tax return for the estate.

Answer 3

If the total value of the estate is over $2 million, then the estate would pay the estate taxes. If the value is under that, then there aren't any estate taxes at the federal level.

Depending on where you and your siblings live, there might be state inheritance taxes.

Answer 4

It looks like you are well below the level where federal estate tax kicks in. Inheritance tax, if any depends on your state law. Any profit or loss from the sales would be taxed at long term capital gains rates with the tax basis set at their fair market value at date of death. You may actually end up with a paper loss on the transactions. Consult a tax professional about how to report the sales.

Answer 5

and capital gains taxes too