What are the Property Tax Implications on Inherited Homes

Inherited Home Planning

Hey guys, this is Mike from Mike Buys Houses and in this video we talk about capital gains on inherited property. I often get the question about property taxes on an inherited property, which generally means that the homeowner is dealing with one of two cases. Either they inherited a property and need to understand the tax implications of keeping it or they are thinking of selling the inherited property, and need to know what the property taxes would be. In these circumstances, you are likely dealing with the capital gains tax, so let’s quickly review.

Inherit a Home to Keep

If you inherit a home and plan on keeping it, then the property taxes are most likely just going to be escrowed into your monthly payments, because most banks want to just ensure that the property that they have a loan out on is current with taxes as far as the state and county go.

Therefore, most likely, the property taxes will simply be escrowed into your monthly mortgage payments. So, as long as you continue to make those monthly payments, just simply reach out to the bank and let them know that you inherited the property and fill out any paperwork on that end, but it should be pretty straightforward.

Selling an Inherited Home

The second case is where you inherited a property and you are planning on selling it. In this situation, you will be faced with potential capital gains. Therefore, the biggest consideration should be what is the market like? Has it really appreciated in value since you inherited the property? 

When you do inherit a property and face capital gains tax, you’re going to be taxed based on the step up basis. This basically means that at the date you inherited the property, the IRS assigns the property fair market value that day. It is from this date compared to the value on the date of sale that the IRS determines the taxable amount. 

Let’s say you inherited a property two years ago and it has been sitting vacant. When you got it, it was valued at $200,000. This year, you decide to sell the property, and it is now worth $300,000. In this instance, you would be taxed on the $100,000 profit of capital gains. The tax rate will be dependent on a few factors, so you should discuss this with a CPA for more specific numbers to base decisions on.

Additionally, you can always reach out to me at 267-984-4765 or fill out the form below if you’re considering selling a property and you’re concerned about that capital gains tax. I would love to have a chat with you to put those fears to rest. I can even walk you through how to improve the overall valuation of your home and avoid large tax hits along the way. 

Whatever you choose to do with your inherited home, please reach out and let’s discuss.