We’ve been talking to a lot of individuals about inherited properties recently, and one of the most important aspect to understand with regards to an inherited house is the capital gains tax implications that may be associated with your plans for the property. If this seems like a foreign concept, don’t worry, I have a couple of other videos talking in more details on capital gains impact that may help. If that isn’t what you’re looking for, then reach out to me directly at 267-984-4765 or with the form below and I’m sure I will be able to help you!
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Important Note: I am not a Certified Public Accountant, and I am about to talk about a bunch of tax information and rules. It is my strong recommendation that you consult with a CPA first so that someone who is more experienced with tax law will be able to help you in your specific situation.
Capital Gains Tax – Understanding Basis
One of the more important aspects to understanding capital gains tax is to understand how it is calculated. When a house is purchased, the purchase price of the property is the fair market value of the property. However, if you inherit a home which was bought for $30,000 but is worth $100,000 on the date of inheritance, the IRS will consider you inheriting the property as a step up in basis. This means that, in the eyes of the government and IRS, the fair market value of the home is $100,000.
Why is this important?
If you happen to want to sell the property that you inherited and are able to sell the house for $110,000, you are going to be subject to capital gains tax. However, due to the step up in basis, the capital gains tax will be calculated on the difference between the new sales price of $110,000 and the updated fair market value of $100,000. Therefore, there is only $10,000 that is subject to capital gains.
This is normally a consideration for individuals who inherit a property that was bought a long time ago, but it is always good to remember how you might be able to save some money in this situation.
If you are looking to sell your property, reach out to me below as we can buy houses either with cash up front or via terms, allowing you to become the bank. Make more on your house than you could selling traditionally while also avoiding all of the repair work needed to sell with a realtor. Plus, you keep 100% of the money.
If this is something that would be of interest to you, fill out the below form and let’s see how we can best help you!