[motherflippinpicker]

Hi. Complicated question, at least for me. Hoping someone with knowledge can help.

We inherited a house through a revocable trust. The trust was dissolved and the house was placed in my husband's name and his sister's name. They now own the house, not the trust. The stepped up value increase was $15k from the time of their grandmother's death to now. Not sure what the house will actually sell for, guessing around $160k.

The house is in Michigan, we live in Florida. My sister in law lived in the house the past 2 years.

When the house sells, do we have to pay capital gains taxes? If so, is there any ball park of what that rate will be? Can we pay the taxes immediately or do we have to wait until we file in April?

[vintageogauge]

It's off season, why not go see a CPA while they're not busy and get a real answer.

[CoachKandSportsguy]

The step up in basis is from the original cost of the house to the value at the date of death of his grandmother. I would spend $500 and get a date of death appraisal for IRS documentation. .

The capital gains will be long term, with the sales price less the sales commission, less any other fees and expenses associated with the sale of the house. . with an estimated increase of $16K to the current value, which given the rise in interest rates, may not be real, and given the $160K value, I would guess that the sales commission and the related expenses would reduce the taxable gain to less than zero. Most houses when sold soon after the markup at death, don't pay capital gains because of sales expense deductions, eat up any taxable gain.

Otherwise, yes, you have to pay long term cap gains, and estimate the tax and pre pay the government to avoid any penalties. .

I am not a CPA, but I have sold two inherited houses for a bit of tax experience, doing my own taxes

[Riverview]

Originally Posted by CoachKandSportsguy

The step up in basis is from the original cost of the house to the value at the date of death of his grandmother. I would spend $500 and get a date of death appraisal for IRS documentation. .

The capital gains will be long term, with the sales price less the sales commission, less any other fees and expenses associated with the sale of the house. . with an estimated increase of $16K to the current value, which given the rise in interest rates, may not be real, and given the $160K value, I would guess that the sales commission and the related expenses would reduce the taxable gain to less than zero. Most houses when sold soon after the markup at death, don't pay capital gains because of sales expense deductions, eat up any taxable gain.

Otherwise, yes, you have to pay long term cap gains, and estimate the tax and pre pay the government to avoid any penalties. .

I am not a CPA, but I have sold two inherited houses for a bit of tax experience, doing my own taxes

Correct

[Haggar]

Originally Posted by Riverview

Correct

I am a CPA - so agree with the analysis that most homes because of closing costs may not wind up with a capital gain and they may even have a deductible capital loss.

If there is a capital gain - depending upon on your other income - rate can range from 0% to 20%.

Estimated taxes are required to be paid based upon last year's tax - it's either 100% of the tax or 110% again depending upon your income.

As long as you meet these requirements any additional tax owed may be paid in April.

[C. C. Rider]

When a house is inherited, it is done so at the CURRENT market value of the house, and no tax is owed if you sell the house at that current market value. However, if you sell the house at a greater price, then tax will be owed on the increase in value from the inherited value to the sale price.

Example: You inherit a house whose current market value is $160,000. Two years later you sell the house for $175,000. Taxes would be owed on the $15,000 long term capital gain (LTCG) less any expenses of sale such as commissions, costs associated with getting the house ready for sale, etc.

Since the house was inherited by TWO people (you and your brother), then each would report one-half of the totals on their taxes. You don't need to report any "gains" until you sell the house because there won't be any gains until you sell the house.


.

[Janie123]

Originally Posted by motherflippinpicker

Hi. Complicated question, at least for me. Hoping someone with knowledge can help.

We inherited a house through a revocable trust. The trust was dissolved and the house was placed in my husband's name and his sister's name. They now own the house, not the trust. The stepped up value increase was $15k from the time of their grandmother's death to now. Not sure what the house will actually sell for, guessing around $160k.

The house is in Michigan, we live in Florida. My sister in law lived in the house the past 2 years.

When the house sells, do we have to pay capital gains taxes? If so, is there any ball park of what that rate will be? Can we pay the taxes immediately or do we have to wait until we file in April?

I’m guessing the person living in the house is the half owner of the house. In that case, it would be her primary residence and she may not have to pay capital gains as she lived there 2+ years but husband would. Sounds like professional CPA is required.

[BoneLakeBennie]

You’ll also have to take into account the possibility of filling a Michigan tax return and paying Michigan income taxes.

[defrey12]

Originally Posted by vintageogauge

It's off season, why not go see a CPA while they're not busy and get a real answer.

Well worth the $150 consultation. Ask rookies here, get rookie responses.

[defrey12]

Originally Posted by Janie123

I’m guessing the person living in the house is the half owner of the house. In that case, it would be her primary residence and she may not have to pay capital gains as she lived there 2+ years but husband would. Sounds like professional CPA is required.

Duh 🙄!

[Christine1964]

Originally Posted by motherflippinpicker

Hi. Complicated question, at least for me. Hoping someone with knowledge can help.

We inherited a house through a revocable trust. The trust was dissolved and the house was placed in my husband's name and his sister's name. They now own the house, not the trust. The stepped up value increase was $15k from the time of their grandmother's death to now. Not sure what the house will actually sell for, guessing around $160k.

The house is in Michigan, we live in Florida. My sister in law lived in the house the past 2 years.

When the house sells, do we have to pay capital gains taxes? If so, is there any ball park of what that rate will be? Can we pay the taxes immediately or do we have to wait until we file in April?

I just went through this. Get an appraisal now on how much is was worth on the date if death. Get a full appraisal. Some will try and sell you an abbreviated or short appraisal, but they are not acceptable to the IRS. Keep the appraisal and use that amount when you sell the house.

[Haggar]

Originally Posted by Christine1964

I just went through this. Get an appraisal now on how much is was worth on the date if death. Get a full appraisal. Some will try and sell you an abbreviated or short appraisal, but they are not acceptable to the IRS. Keep the appraisal and use that amount when you sell the house.

In all my years of preparing tax returns if the house is sold shortly after it is inherited the sales price would be the step up basis. No need for an appraisal. Other cases we were able to research the sale of similar homes near the date of inheritance and establish a basis that way,

I have never had the IRS question the basis of a house sold whether it be a home subject to the $500,000/$250,000 exemption or an inherited property.

[BrianL99]

Originally Posted by Haggar

In all my years of preparing tax returns if the house is sold shortly after it is inherited the sales price would be the step up basis. No need for an appraisal. Other cases we were able to research the sale of similar homes near the date of inheritance and establish a basis that way,

I have never had the IRS question the basis of a house sold whether it be a home subject to the $500,000/$250,000 exemption or an inherited property.

Exactly. In this case, the appreciation was minimal. The IRS would spend more money questioning it, than they'd get it taxes. Not that the IRS hasn't gone on wild goose chases, before.