If a home is left to 3 surviving children , and sold outside family is there a capitol gains tax?

Question

this home appraised at 118,000. If sold on the market is there a capitol gains tax or will each surviving child get 33 1/3% of the 118,000, there was already 210,000 in cash split 3 ways

Answer 1

The difference between the cost basis in the home and whatever it sells for is subject to capital gains taxes unless you qualify for the exclusion. You'd have to own and live in the home for 2 of the last 5 years as your principal residence to qualify for the exclusion.

The cost basis is the value of the home on the date of death of the previous owner(s). If that valuation was $118,000 and you sold it for that much there would be no gain and therefore no CG tax.

If there is any CG tax due, it is treated as a long term capital gain which is taxed at a lower rate. The rate is 15% unless your marginal rate is 15% or less. In that case it's 5%.

Each of the 3 sibilings would use 1/3 of the cost basis and 1/3 of the net proceeds (sales price less costs of the sale) from the sale to figure their individual CG tax if any is due.

The $210,000 in cash is not taxable to you at the Federal level though a couple of states still have inheritance taxes. Typically those are paid by the estate but you'll need to check with the executor of the estate to see what, if anything, was paid. That applies to the proportional shares of the home as well.

(The other response regarding "inheritance" taxes is incorrect; there is no inheritance tax at the federal level. The estate tax exclusion amount is $2 million, not 1.5 and estate taxes, if any, are paid by the estate, not by the heirs. And CG tax IS due if there is a gain on the sale.)

Answer 2

When you inherited the property you received it at its "stepped-up value" or in other words at the value of today's market. That means if you sell it at the $118,000 you will realize no capital gains since your basis is the $118,000.

The other $210,000 still falls within the limits of an inheritance that is not subject to federal income tax. Your State tax law may be different so you should check with someone knowledgeable about State tax law. Probably the attorney who worked on the inheritance will be able to advise you.

Answer 3

Maybe an estate tax, but not much. Any appreciation from the time of the death of the person it was inherited from until the sale would be subject to capital gains tax at the time of the sale.

Since estate tax doesn't kick in unless the estate is over 2 million dollars, that wouldn't be an issue here.

The above is for federal. Depending on where you live there might be a state inheritance tax.

Answer 4

You may have a major issue with taxes. It depends on the value of your house. The old roll-over of capital gain for you home no longer apply. The law changed. There is no more rolling over. There is a 1031 roll over law but that applies to investment properties, not primary residences. The new law...If you live in your home the previous 2 years (which you qualify), you are exampted from the first $250,000 of capital gain tax ($500,000 if filed jointly). You can repeat this every two years. So if you bought your house for $30,000 thirty years ago and it is worth $280,000, you just made it. However if your house worth more that that, anything above the $280,000 you may have a tax liability. On the other hand if you and your spouse file jointly, you still have a lot of room. You need to talk to your local CPA. It would be difficult to help you much on this forum other than to give you some general ideas. By the way, have you heard of the "reverse mortage"? It is not for everyone but in your situation, it may make some sense. Again, check it out with your financial advisor.

Answer 5

If this house was sold shortly after it was inherited, there will be little or no gain to be taxed. This is because the basis of the house on which the gain is figured is the fair market value on the date of death of the decedent (or slightly later date as determined by the estate).

If the house was not sold shortly after it was inherited, then the gain, and tax on the gain, depends on the holding period and the use of the property. I will omit that information since you didn't make any statement about it.

Answer 6

It will get a stepped up basis at the time of death or 6 months later. So if it appraised at 116K at that time and later sold for 118K you would have a tax on 2K. The estate would have paid any inheritance tax not the heirs. Federal Estate tax has a pretty high minimum so most people don't have a death tax.

Answer 7

1. Any thing (money and property) you receive as gift or inheritance, you (the receiver) don't pay any federal tax. Exception: If you inherit a traditional IRA, you are called a beneficiary. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

2. For any State tax liability check at your State's web site. For most of the States there is no tax.

3. If you inherit a property, your cost basis is the valuation (Fair Market Value) of the property at the date of the decedent's death or the FMV (Fair Market Value) on the alternate valuation date if the personal representative for the estate elects to use alternate valuation.

4. If you sell the inherited property at a price up to your cost basis you don't have any taxes due. However, if you sell the property at price more than the cost basis to you, then you pay the taxes on the profit (sale price minus your cost basis).

Answer 8

it would not be a capital gains tax but an inheritance tax. and there would be no tax unless the estate is more then a million five.