When you inherit a property, it doesn’t mean that you have to sell the property. In fact, approximately 29% of people who inherit their primary residence choose not to sell it. There are a variety of reasons why someone may choose to keep an inherited home – emotional attachment, sentimental value, and planning for the future are all possibilities. But if you’ve decided it’s time to sell your inherited house or another real estate, there are specific rules and guidelines on how long you have before selling becomes mandatory.
Do I have to pay tax on an inherited property?
When someone passed away, any estate that is worth $600,000 or more will incur a Federal Estate Tax. A large percentage of the money from this tax goes to support social security and disability programs. If you inherited an estate that was worth less than $600,000 and it consisted entirely of cash, then you must pay capital gains tax on the money you received. For example: if your uncle left you $500,000 in his will and all of this was in cash form – even though the total amount of the inheritance was less than $600k – you still have to pay capital gains tax on this transaction.
The fair market value
The fair market value is determined by looking at tables or current listings for similar properties in the area. The fair market value is what you would expect to get on the open market for this type of property. If you inherited a property, fair market value is the price you would sell it at without trying to negotiate and without having to go through probate court.
If the fair market value is less than fair market value, then the estate would subtract this amount from your total inheritance. If the fair market value is higher than fair market value, then you must report this difference as income on your tax return (the lesser of fair market or fair market value).
How much is capital gains tax on inherited property?
The time frame for paying capital gains depends on whether your home qualifies as your primary residence and if not – how many years you lived there. If you owned and used this property as a primary residence for 2 out of 5 years prior to the passing of the owner, then you don’t have to pay capital gains. For example, if your mother passed away in May 2013 and you inherited her home that was worth $250k – but she only lived there for 3 years out of the past 5 before she died – then you would owe no capital gains tax.
How long do I have to sell an inherited property?
You are required to pay taxes or file paperwork (depending on your situation) within 9 months of when you inherited your home. If you don’t, there can be serious consequences including late fees, interest charges, and even some criminal penalties.
How is inherited property taxed when sold?
If you inherit property and it is worth less than fair market value when you sell, then you must claim the fair market value minus what the estate originally paid for the house (if this information is available) as your cost basis. If the fair market value was between $350k-$500k, then your capital gains tax will be less than if fair market value was $200k or less because of this difference in price.
If the fair market value is more than what your family originally paid for it, then selling this inherited property could result in a substantial tax bill. Please give us a call if you have questions about the fair market value or inherited property and we can help identify any possible issues before they arise.
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Step-up tax basis
Selling an inherited home can often leave a big tax bill for the beneficiary of the estate. In order to help reduce this burden on you, there is a “step-up in basis” rule that may allow you to sell your inherited property at fair market value without having to pay taxes on any difference between fair market and fair market value or the taxable income from the sale.
The step-up in basis rule allows beneficiaries of estates to receive assets with a fair market value equal to what it was worth when they received it instead of taking what their family originally paid for it (if this information is available). Holding onto an appreciated asset like this without paying capital gains tax would be roughly equivalent to receiving an inheritance with a fair market value of $275k and a fair market value of $300k.
Please note that fair market value is typically the highest amount you can list an inherited property for without paying capital gains tax if fair market value falls between $350k-$500k, but be sure to get your appraisal before listing.
Inheritance taxes
Inheritance is taxed at a higher rate than the estate tax, but they both work in very similar ways. Both inheritances and estates are subject to inheritance tax if the fair market value was over a certain amount when the original owner passed away.
When the fair market value of the inherited property is more than $700k for an individual or $1.5M for a married couple, then they would have to pay federal inheritance taxes on anything above this limit. The inherited property does not go through probate as other assets do, so there is no way to avoid these taxes or create exemptions that can help lower total income from inheritances in most states.
There are certain ways to avoid these taxes based on the fair market value of fair market value, which is typically between $350k-$500k if it falls within this range. One way would be for the beneficiary to wait until they’re 55 years old before selling the inherited property since there are no inherited property taxes on assets that have been held for at least five years by that point.
Who must pay inheritance tax?
If there is an inheritance tax due on your inherited house, it’s usually paid by the estate or person who received the home in the deceased person’s will. However, if you sell this inherited property at fair market value within 9 months after receiving it, then you might owe capital gains tax instead which could leave you responsible for this bulk payment.
The state where fair market value was determined might also have a separate estate tax along with your federal inheritance tax that might increase the burden on you if the fair market value is more than $100k.
Please consult with an accountant to be sure, but it’s usually best for beneficiaries of estates to sell inherited property at fair market value within 9 months after receiving it in order to avoid having to pay capital gains tax or even an inheritance tax.
Who will handle the estate sale?
Once the fair market value has been determined, most states allow beneficiaries of estates to complete any necessary legal paperwork before handling the sale themselves so they can get fair market value for their inherited home and don’t have to worry about hiring a real estate agent.
Call Now (818) 651-8166
Why Sell Your Home to ASAP Cash Offer?
- You Pay Zero Fees
- Close quickly 7-28 days.
- Guaranteed Offer, no waiting.
- No repairs required, sell “AS IS”
- No appraisals or delays.
Estate taxes
It is only applicable to individuals who are American citizens or residents, so if you’re an estate planning attorney living in Canada handling the affairs of a client residing in far-away Russia, your client’s options for selling the property will be much different than someone who lives across the street.
Regardless of where you live, however, it would be prudent to first ask yourself why you want to sell the property. If it’s because there is no one left in your family to inherit it and you want to be rid of this burden as soon as possible, the fair market value may not be important since you simply want to unload the property quickly without regard to how much money it brings after all associated costs have been paid.
Avoid paying taxes by home sale tax exclusion
If the fair market value is less than $250k, then you can avoid paying capital gains taxes if fair market value falls within this range. This is a unique advantage fair market value has over fair-sales price since fair-sales price does require you to pay capital gains tax if the fair market value is more than $250k.
One of the most important things to keep in mind is if the fair market value is between $350-$500k which is when the fair market value would be taxed at federal inheritance tax instead of capital gains tax. There are certain ways to avoid both taxes which include waiting ten years before selling inherited property with a fair market value under $1M or holding onto this property for at least five years if it’s
Why use a real estate agent to sell your home?
It might seem much easier to just take the fair market value and find a buyer yourself, but you’re likely not able to list fair market value on the internet or in public places like real estate agents can. Even though real estate agents tend to have very high commissions, it’s best to look at the fees and commissions to see what option might be better, such as selling your home for cash.
A real estate agent will also be able to help determine fair market value based on your specific situation and if any renovation costs are involved before listing fair market value so they don’t have to reduce it after putting in time and effort to list it.
This can help you get fair market value for your inherited property as well as a quick sale so you don’t have to worry about paying any more capital gains tax or an inheritance tax.
Sell inherited property fast and easy!
If you’re a homeowner looking to sell your house fast and need cash in exchange, ASAP Cash Offer can most definitely help you! We purchase and will pay cash to homeowners whatever the current market conditions would be. This can be beneficial if you don’t want to bother with the repair costs waive inspection altogether, or just want out of your current situation as soon as possible. Just Fill up the form below, or call us at (818) 651-8166 and you will receive a fair cash offer for your home within 24 hours, with no hidden fees in the deal or closing costs like listing with the realtors!
