Inheriting real estate can be complex.
You have inherited real estate.
You have a lot of questions.
In fact, tax questions may be foremost on your mind.
According to a recent Petoskey News-Review in the article “The pros and cons of inheriting real estate,” taxes due are dependent upon a few factors.
If you live in a state without an inheritance tax, you will not owe anything on the property simply because you inherited it.
Kansas and Missouri fall into this camp.
However, our Cornhusker neighbors (oh, how I miss the Big 8 Conference) do have an inheritance tax.
What about real estate capital gains taxation?
How does that work on gifted and on inherited real estate?
Capital gains and losses are calculated based the purchase and sale price of the home.
Let us say your parent gives you his or her home.
The price when purchased was $100,000.
You then turnaround and quickly sell the home at $220,000.
You will need to pay taxes on the $120,000 in gains.
What if you inherit the home instead assuming the same numbers?
If you sell the property at $220,000 soon after the death of your parent, then you will pay no capital gains taxes.
At death of the owner, the property received a step-up in basis to its new value.
Having the property valued by an experienced real estate appraiser is important for you to determine the actual value at the date of death.
Do not know an appraiser?
Ask an experienced estate planning attorney.
He or she may be able to give you a recommendation.
Taxes are not the only issues faced when inheriting a home.
Interpersonal conflict can arise.
If multiple children inherited a home and they disagree about selling, then families can be torn apart through conflict.
Discuss these plans with your parents and among your siblings before inheriting.
By doing so you will keep family peace and manage expectations.
Open communication throughout the estate planning process will help bring your family together rather than bring discord.
After all, home is where the heart is.
Reference: Petoskey News-Review (June 25, 2019) “The pros and cons of inheriting real estate”