Selling an Inherited Home in Florissant and Tax Repercussions

selling an inherited home in Florissant

When selling an inherited home in Florissant you must first know some basic tax rules.  An inherited property that you do not live in is considered an investment and the sale follows the rules of any sale. You get a stepped up basis in the property to the Fair Market value at time of death and your holding period is automatically long term. Any gain is taxed at a long term capital gain and any loss is LT capital loss. You can take $3,000 each year against ordinary income and can carry forward the loss until used up.

“Basis” means an asset’s cost for tax purposes. The basis of a home you buy or build is its cost, plus any improvements you make while you own it.  If you’re selling an inherited home in Florissant, “basis” is a word you should understand. Basis is the amount the home (or other property) is worth for tax purposes. When you are selling an inherited home in Florissant your gain (profit) or loss for tax purposes is determined by subtracting its basis on the date of sale from the sales price (plus sales expenses, such as real estate commissions). The larger your basis, the smaller your profit will be, reducing your tax liability. If you are selling an inherited home in Florissant for less than its basis, you’ll have a loss. However, losses incurred on the sale of a personal residence are not deductible.

However, a home’s tax basis is can be determined in a different way when someone inherits a home after the owner dies. When you inherit property after the owner dies you automatically receive a “stepped-up basis.” This means that the home’s cost for tax purposes is not what the now-deceased prior owner paid for it. Instead, its basis is its fair market value at the date of the prior owner’s death. This will usually be more than the prior owner’s basis.

The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death.

Example: Jean inherits a house from her father George. He paid $100,000 for it over 20 years ago. George made $20,000 in improvements over the years, so his ‘s tax basis in his home just before George died was $120,000. However, when Jean inherits the home its basis is stepped-up to its fair market value on the date of George’s death. Jean has the home appraised and this value is set at $500,000. Jeans sells the house for $505,000 a few months after she inherits it. Her tax basis in the house is $500,000. She subtracts this amount from the sales price to determine her taxable gain: $505,000 sales price – $500,000 basis = $5,000 gain.

If you are selling an inherited home in Florissant for less than its stepped-up basis, you have a capital loss that can be deducted (assuming you don’t use the home as your personal residence). However, only $3,000 of such losses can be deducted against your ordinary income per year. Any excess must be carried over to future years to be deducted.  To learn more about selling an inherited home in Florissant and the taxes involved and how we buy houses  contact St. Louis Realty Advisors at (314) 227-0000.

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