If I Sell Inherited Property Is It Taxable? – What if you inherited property and after living in it for a few years, you decide to sell it to make some profits? Are you required to pay taxes from the sale? What are the conditions that will allow you to get a discount when paying taxes if ever you need to? Can you not pay taxes altogether?
What You Need to if Know
By answering the questions above, if I sell inherited property is it taxable? it may be easier to find buyers for your inherited property especially if it is located in prime land. However, with additional taxes to be paid, you may end up with a measly profit even if you sell house for a high price.
This is why it is important for you to find answers to the questions above before making the sale. Fortunately, this article will help you find the viable answers your questions and more.
The answer to the main question in this article is it depends. There are certain conditions that have taxes apply to inherited property just like any other property in the market.
These conditions are as follows:
Capital Gains Tax and Losses
Unfortunately, you cannot get away from paying taxes completely. You have to pay capital gains taxes and loss once you sell the property. This applies to everything that you sell including cars, stocks and ultimately real estate. The rules slightly change with inherited property though.
Steps to Decrease Capital Gains
If you want to lower your taxes, you would need to live in the property for at least a couple of years prior to selling it. However, things can change if you live in the property for a significant amount of time in the property before selling it.
In this case, since it becomes personal property, any losses will not count as deductions in your tax declaration. To compute for the loss and capital gains taxes in your inherited property, you would need to determine your cost basis.
Computing the Cost Basis for Inherited Property
This can be quite difficult because you didn’t buy the property. The person who gave it to you bought the property. If I sell inherited property is it taxable? Here are some steps that you can take to determine the cost basis of inherited property.
Normally, the cost basis is determined by the original value of the property when it was bought in addition to the renovation costs it incurred over the years. However, for inherited properties, a stepped up basis applies.
The Stepped Up Basis
The stepped up basis refers to the current appraised value of the house. This specific number can then be used to determine the losses and gains that you have from the sale of the home.
If your losses go up to a certain amount, you will not be able to subtract the whole amount in a given year. However, you will be able to deduct the maximum accumulated amount within a year until you have completed all the losses.
Important Reminders
You have to be careful when doing this because the IRS is closely watching every single tax computation done on the property. If they discover fraud in the process, you will be liable to the court of law.
Conclusion
If I sell inherited property is it taxable? these are just some of the major points that you need to know about selling inherited property and the taxes applied to it by knowing these factors, you will be able to get the most profit out of your home sooner rather than later.
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