Do You Need to Pay Capital Gains Tax on Inherited Property?

Posted on November 9, 2017 | Back to blog

Inherited House capital gains taxinherited property

Capital gains taxes can apply to anyone who sells a property or other large asset. According to the IRS, a capital gain occurs whenever you sell an asset for more than its value. Following are facts that the IRS wants you to know about paying capital gains on inherited property, including how to avoid any capital gains taxes, so that you don’t end up in an ugly situation.

It’s All About the Basis

Calculating a capital gain starts with something called the basis, which is essentially the value of the asset.

The basis is usually the amount you paid for the asset, plus any other costs such as sales taxes or associated fees. If you spent any money to improve the asset (such as adding a garage onto a house), those expenditures are added to your basis.

To determine the amount of a capital gain, you subtract the basis from the sale price. The difference is the capital gain, which you’ll need to report on your taxes.

What Is the Basis of an Inherited Property?

When you inherit a property, you haven’t actually bought it, so the basis is calculated differently. Instead of the purchase price, the basis of inherited property depends on the current appraised value. It doesn’t matter how much the original owner paid for it.

For example, let’s say that your parents originally paid $100,000 for a house, but it’s worth $300,000 when you inherit it. For your tax purposes, the basis is $300,000.

If you sell the house for $350,000, then you must report a $50,000 capital gain on your taxes.

How to Avoid Paying Capital Gains Tax on Inherited Property

Currently, you can avoid paying capital gains tax on inherited property by selling it for less than the basis. In that case, you’re considered to have a loss, which you may be able to deduct from your taxes (up to $3,000 per year).

For example, if you inherit a house worth $300,000, and then sell it for $285,000, you could avoid paying any capital gains tax at all. In addition to keeping that money tax-free, you may be able to deduct up to $3,000 off of your taxes every year for the next five years.

We Buy Ugly Houses® buys houses at a discount, which can help you avoid paying capital gains tax. Plus, there’s no middleman and no extra fees, which saves you even more money when selling your inherited property.

The Easiest Way to Sell Inherited Property

Most inherited properties need to be fixed up before they can be listed for sale. New owners are often faced with the time-consuming and expensive tasks of painting, patching leaky roofs, and replacing old wiring. Then they have the extra time and hassles of hiring a real estate agent, staging, and showing the house.

We Buy Ugly Houses makes it easy. As America’s #1 home buyer, with locations throughout the country and more than 75,000 houses purchased since 1996, We Buy Ugly Houses is the most trusted name in the business. Find out how you can avoid an ugly capital gains situation by selling an inherited property quickly, “as is,” for cash. Contact We Buy Ugly Houses today.

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