Capital Gains on Inheritance question

Discussion in 'Tax' started by Therese G. Maddox, Oct 22, 2003.

  1. I have a question about capital gains on a house that my
    brother and I received as inheritance from our deceased
    father. I understand that the value (stepped up value?) of
    the house will be set as of the day my father died. If we
    sell it for more, how will that work out with the capital
    gains taxes? In our case, the house was appraised for $350k
    shortly after he died. We will be able to see it for
    50-100k more than that but neither of us have lived in the
    house for over 5 years. How does the exemption work for
    people who are "co-owners" of property? We have the choice
    of putting the house in both of our names or leaving it in a
    Trust after the Estate is closed. Does having the house in a
    trust change anything?

    Thanks!!

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    Therese G. Maddox, Oct 22, 2003
    #1
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  2. Therese G. Maddox

    Herb Smith Guest

    (Therese G. Maddox) wrote:

    > I have a question about capital gains on a house that my
    > brother and I received as inheritance from our deceased
    > father. I understand that the value (stepped up value?) of
    > the house will be set as of the day my father died. If we
    > sell it for more, how will that work out with the capital
    > gains taxes? In our case, the house was appraised for $350k
    > shortly after he died. We will be able to see it for
    > 50-100k more than that but neither of us have lived in the
    > house for over 5 years. How does the exemption work for
    > people who are "co-owners" of property? We have the choice
    > of putting the house in both of our names or leaving it in a
    > Trust after the Estate is closed. Does having the house in a
    > trust change anything?


    If the house is sold for MORE than the date of death value,
    there will be capital gains and a tax due. Any improvements
    made after death are added to cost basis, and may reduce the
    gain. Selling expenses, including real estate commission,
    reduce the selling price - further reducing any taxable
    gain.

    However, if the sale occurs shortly after DOD, the IRS may
    consider the sale price to be a more valid indicator of
    value (vs the appraisal) and would rule that there is no
    gain or loss on sale.

    Neither of you is entitled to an exclusion on the gain, as
    you did not own the house nor live there for two of the
    previous five years. The "step-up" in FMV is in lieu of such
    exclusion.

    Titling the house as co-owners or leaving it in the
    estate/trust is not really an issue, if you two are the only
    beneficiaries of the estate. If the estate/trust sells the
    house, the gain will be passed to you via the 1041/K-1 form
    from the executor.

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    Herb Smith, Oct 24, 2003
    #2
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