Important Tax Considerations When Inheriting a House
While inheriting a home can bring with it many benefits, it also raises a number of important questions and points for careful consideration. One such question is this: what is the tax situation when you inherit a house? If you have recently inherited a piece of residential property, or soon will be, here is some vital information that will help you decide how to move forward.
Many of those that inherit houses find themselves asking whether they will end up owing taxes on them. At this point in time, there is no inheritance tax that one would owe on the federal level. As states are able to set up their own taxation policies, it is possible that you would have to pay a certain amount in inheritance tax to the state directly. To find out what the specific regulations are in the state where the property is located, it is a good idea to speak with your tax advisor or financial planner. Generally speaking though, there is unlikely to be any up-front taxes that you’d have to pay right after inheriting the property.
When you inherit a house, a fundamental decision to make is whether to keep it (either living in it directly, or renting it out), or put it on the market. Your tax situation for the property will depend on what you ultimately decide to do. Regardless of which path you choose, it is important to understand the concept of fair market value. Whenever a house is passed onto someone through inheritance, the IRS will make a determination on what a reasonable baseline is for its worth. This value will come into play if and when you decide to sell the home.
When You Inherit a Home, What You Do Determines What You’ll Owe
If you decide to maintain ownership of the house and move into it, you will be responsible for paying real estate taxes, which are also commonly known as real property taxes. The taxation rates vary state by state, with some coming in at less than 0.5%, others at 2% or more, and a majority in between. When figuring out if it makes sense to keep the home, you’ll certainly want to take this tax into consideration. One potential tax-related benefit of keeping the inherited home is the capital gains exclusion. Profits (anything over the fair market value discussed earlier) from selling the house are subject to capital gains taxation. However, if you meet the IRS’s residency stipulations, you could be able to exclude part of that profit from being taxed.
Renting out inherited property comes with its own set of tax guidelines. On the positive side, those with rental properties are able to benefit from a number of tax deductions. Also, any revenue that you would take in from having the rental is fortunately subjected to a lower rate of taxation than more traditional income. The downside to using the inherited house as a rental rather than living there yourself is that you will be unable to take advantage of the capital gains exclusion if you decide to sell it down the road.
Choosing to sell the house means that you’ll have to deal with capital gains tax on any profit you make over the established fair market value. This burden can be lessened if you live in the home for the requisite amount of time prior to selling it and end up qualifying for the capital gains exclusion.
Swift Homes Will Help You Sell Your Inherited House
If you ultimately decide to sell the home you inherit, Swift Homes is here to help. Our company provides top cash offers for single-family houses across the United States. The Swift Homes process is quick and easy from beginning to end, and we are able to finalize some transactions in as few as 10 days. When you choose to work with us, you won’t need to put in a lot of time and money for home repairs as we facilitate the sale of properties in as-is condition. Get your no-obligation cash offer now, or give us a call at (877) 861-2466.