Taxes are a significant question when it comes to an inheritance.
Estate taxes and inheritance taxes are important topics of estate planning.
How one creates an estate plan will in turn affect the amount of taxes owed.
According to a recent nj.com article titled “I inherited my father’s home. Do I owe any kind of taxes?,” special care must be taken when it comes to passing along a home.
The estate tax exemption is $11.4 million, per spouse at present.
If the proceeds of the sale do not drive the value of the estate above this number, then federal estate taxes will not be triggered.
Depending on the state, a state estate tax or an inheritance may be not be an issue.
Kansas is one such state.
Missouri is another.
The money from the sale could trigger income taxes.
How are income taxes calculated?
The tax is determined from the difference between the sales price and the basis at assessment minus the cost of the sale.
What is basis?
The basis is found by adding the cost of improvements to the initial purchase price.
The asset basis receives either a “set-up” or a “step-down” according to the value on the date the decedent dies.
Keep the date of death value of the home.
This will be helpful should you be audited by the IRS in the future.
What would then be owed by the heirs?
The higher the difference, the greater the tax would be.
Generally, these are not large sums in most instances.
Reference: nj.com (March 11, 2019) “I inherited my father’s home. Do I owe any kind of taxes?”