Do you pay inheritance tax on property you inherit in Orlando?
While inheriting a house comes with its own set of circumstances, it can often present a few hassles for you as a homeowner. Now you will need to figure out what you want to do with it, what extra costs may be involved, and if there are any taxes that you should be aware of.
Whether your inherited property is in Florida or another state, you'll likely need to know about estate tax and inheritance tax on property, especially if you decide to sell. You should also know how the capital gains tax works and how the stepped-up basis will affect your potential home sale.
What is the difference between estate tax and inheritance tax?
- Estate tax: This tax is based on the total value of the estate, which includes property, investments, and other tangible assets. It is typically paid before you inherit the property. Both federal and state governments can impose estate taxes.
- Inheritance tax: These taxes are paid by the inheritors, as opposed to the deceased. There is no federal inheritance tax, but individual states retain the right to charge an inheritance tax.
Florida has no state estate tax or inheritance tax on property.
While Florida doesn’t have these, it doesn’t mean you won’t be paying any taxes on an inherited house. The federal government also has an estate tax. Thankfully for most, the federal estate tax only applies to individuals with a net worth of $12 million, or $24 million for married couples.
Do you need to worry about capital gains tax?
Capital gains are the appreciation in value from the time the house was first purchased to the current time. A capital gains tax is what you pay on any asset that is worth more when you sell it than it was when you inherited it.
The amount of time you hold onto an asset will determine the tax rate for capital gains from inherited property. Short-term capital gains rates, which are rated at your ordinary income level, are for assets held for less than a year. If the asset is held for a year or more, the capital gains tax is calculated for the long-term capital gains tax rate, which can be anywhere between 0% and 20%.
Thankfully, you can avoid capital gains tax with a stepped-up basis. Usually, when a person inherits a property or asset, its value is higher than when it was originally purchased. Because of this, capital gains would inevitably affect how much you get for selling your inherited house. But when a person inherits a house, the property gets a new tax basis that is equal to the fair market value at the date when the decedent passed. This allows the value of the house to “step up” to current standards.
Since you inherit the house on a stepped-up basis, you can sell at fair market value and not pay capital gains taxes.
Costs associated with inheriting a house
If you decide to keep a property you inherit, it’s important to remember some ongoing costs that you could be responsible for:
- Mortgage: There are protections in place for those who inherit property with a mortgage. While you aren’t responsible for paying the owed mortgage amount, the lenders will be able to take the house back if you fail to keep up with payments.
- Home equity loans: There are no protections in place for inheriting a property with a home equity loan. You may be able to refinance the property or take out a new home equity loan. You should notify the lender and check the amount you’d need, as well as current interest rates, before you make a decision.
- Reverse mortgage: A reverse mortgage is a home loan that you don’t have to pay back during your time living on the property. That means when you inherit the property, the loan balance will be due in full. The only time this won’t affect you is if you are the surviving spouse.
- Utilities: While the cost of living in Orlando is higher than the state and national average, utilities are typically cheaper.
- Property tax: Property taxes change depending on where you live, and this can make a big difference in what you pay. Orange County has an average property tax rate of about 1.3%.
- Repairs: You may not inherit a house that’s in pristine condition. Home repairs and renovations can be costly, and a full renovation of a home in Orange County has an average cost of around $40,000, according to Manta.
- Maintenance: The average home maintenance cost in Orlando is about $3,200 a year. That means it is expected to have a monthly budget of around $260–$270 to account for upkeep costs.
If you’d rather not deal with the effort of keeping the inherited house, you could sell it to an off-market home buyer like We Buy Ugly Houses®. With us, you can even sell your Orlando house “as is.”
Sell your inherited house the easy way.
When you want to simplify the process of selling an inherited house, We Buy Ugly Houses® in Orlando is here for you.
With an easy 3-step home-buying process, it’s possible to sell the house you inherited at your own pace.
We’re known as America’s trusted home buyer, and we’re proud of the fact that we’ve earned a nationwide 95%* customer satisfaction rating from sellers who responded to our post-sale survey. Find out for yourself what it’s like to sell to us by reading real reviews.
Ready to sell your inherited home? It’s time to make We Buy Ugly Houses your first call. Get a consultation at no cost and see how much you can get for your property.
This blog is for informational purposes only and should not be considered legal advice
