Inherited House Taxes

Going through the process involved with inheriting a home requires knowing who pays various taxes and when they're paid.  Inherited property--like a house--is subject to estate tax that the estate pays for the entire year of death.  The heir pays capital gain tax when selling the home after receiving it from the estate.  Both estate and also the beneficiaries can owe property taxes.

Estate Tax

Estates are susceptible to an estate tax calculated on the value of property owed by the deceased person during the time of dying.  This tax is paid before property gets in the receivers of the estate.  You are able to determine estate value through adding all the decedent's assets--such as the fair market price of the house--and subtracting all financial obligations of the deceased person--including any mortgage on the house.

A part of an estate's value is exempt from estate tax.  Any estate having a taxed worth of not more than this limit does not owe the tax.  The threshold can adjust and it was removed in 2010 to ensure that no estates are susceptible to estate tax for persons who died that year.  However, the tax takes effect again on January 1, 2011.  For 2009 estate tax returns, the exemption amount was $1,000,000.

 

Capital Gain Tax

A taxable gain or loss occurs once the inherited home is sold following the decedent's death.  An increase is available when the sale proceeds exceed the date of death value.  There's a loss of revenue when the sale earns less the value at death.  The value of inherited house on the date of death is the basis on calculating taxable gain upon sale of the property.

Gain or loss is reported in the ITR for an estate when the house sells prior to being distributed to the beneficiaries by the estate executor.  The estate beneficiary accounts the capital gain if selling the inherited house after distribution by the estate.

A much lower rate for long-term capital gain is applicable to assets sold after twelve months of ownership.  However, all inherited rentals are taxed in the long-term capital gain rate when sold by beneficiaries.

Property Taxes

Cities assess taxes on property based on its market price.  These taxes are collected by metropolitan areas, counties, school districts, along with other organizations granted authority to tax property values.  Estates pay property taxes which are due and payable before a decedent's house go to any beneficiaries.  These taxes are deductible on the estate's ITR.  After getting the inherited house from the estate, beneficiaries pay property taxes due on following years after the decedent's death.

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