I inherited residential rental houses in 2006, do I have to pay tax on this in 2006 or just when I sell it?

Question

This is in Twin Fall Idaho

Answer 1

There is no inheritance tax in Idaho, and it is unlikely the property is worth more than a million dollars. If it was worth more on the date of death, there may be federal inheritance taxes due, or at least a return to be filed.

The income is taxable, often back to the date of death, since at common law, real estate passed to the heir(s) at death.

What you will have to pay if or when you sell it is a capital gains tax, based on the increase in value since you inherited it.

Answer 2

There are several different tax issues at hand here. I'll try and touch on all of them.

First off, on the inheritance itself, there are no Federal or Idaho inheritance taxes at all, so no problem there. There is a Federal Estate Tax but any tax would be paid by the estate. Not sure of any Idaho Estate Taxes, but again they are paid by the estate so you don't need to worry about that.

Now, you will have real estate taxes due every year. There's no way around that. At least it's for rentals so your tenants are paying that for you. ;)

Since you are renting it out, you will pay income taxes on the rental income. File Schedule E with your Form 1040 return to account for the rental income and the expenses. You can deduct repairs and maintenance, property taxes, insurance, interest, utilities, property management fees and commissions, depreciation, etc. and these will all reduce your taxable income from the rental operations.

Now, as to when you sell the property. You will have capital gains taxes on the gain on the sale when you do sell. Your basis is the stepped up basis you received when you inherited the property so normally you only pay tax on the gain since the bequestor's date of death. However, since you are renting the property out you must recapture the depreciation allowed OR ALLOWABLE while you rented it out. This is a common tripping point for new landlords! Even if you don't take a deduction on Schedule E for depreciation, you must deduct an amount equivalent to what you could have taken from your basis to arrive at the adjusted basis for the capital gains calculation.

For this reason it would be a good idea to consult with a tax pro now to make sure you're doing things right when you file your returns. And again when you sell the property to make sure that you do the depreciation recapture properly.

Answer 3

You will pay no income tax on the inherited properties. Your tax will be based on the income generated by the properties.

Do you have rental income from the properties since you inherited them in 2006? If so, you will file Schedule E. Even if the properties were vacant, you will use Schedule E to figure your expenses.

Since your properties are inherited, your basis is the fair market value of the property at the time you inherited it. You will depreciate the property from that stepped up basis.

When you sell the property, the basis is the stepped up basis minus any depreciation that was taken (or allowed) since you inherited the property. Inocome tax will be due only on the difference of the selling price (minus commissions) and the basis.

If you didn't file Schedule E for 2006, get that done now so that you will be ready for 2007 with the correct adjusted basis.

Answer 4

Well liveCoal
Property taxes are due on ALL properties each and every year --- so, looks as though you could already be looking at two years worth of taxation at one time !! I would check on this immediately -- for, according to what the statutes happen to be IN Twin Falls, they can, after a certain "grace period" for unpaid taxes -- sell the property off at auction FOR the taxes --- THIS -- I think that you'll agree -- would be a travesty !!

You will pay capital gains taxes on this property once it is sold --- as income received !!

Hope this helps --- and, Good Luck in all of this !!

Answer 5

Assuming that they are rented out, you'll owe income tax each year on the net income from them.

You'll owe property tax each year.

Answer 6

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Answer 7

you pay property taxes on it every year.

Answer 8

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