5 Things You Should Know About Inheriting a Home
You’ve inherited a home – now what? Chances are, you have decided to sell it for whatever reason. What is the next step? Before you decide, you might want to know about some of the financial legalities tied to inherited homes. This is important because each decision you’re going to make – how much you’re going to invest into it, how long you are going to keep it, etc. is going to determine what additional taxes you will need to pay on that “new to you” property. It also matters because there are lots of steps to prepare a home before selling it. That costs money. What’s more, the steps involved to renovate a house are also not exempt from taxation.
Understanding how your newly inherited home can impact you this next tax season is important for you to make the best decision.
Inherited a Home? It Can Cost You!
Each year, you pay taxes on your assets. This includes far beyond what you collect in a paycheck. For example, when you own a home in Kansas City, you pay property tax on that home, or if you have recently sold an inherited home and collected that additional cash, you will have to pay taxes on it.
According to the IRS, when you sell a property, the difference between your sales price and the adjusted basis or cost of the home is the capital gains. Those capital gains are what you are taxed on. More simply put, it is a tax that you pay when you sell a property for more than its value.
In order to avoid paying taxes on inherited property, the IRS wants you to know a couple of things about it:
- Capital Assets.
Anything that you own can be called a “capital asset”, such as property and inherited homes. This is important because anything with capital assets is apt for taxation; aka inherited home = capital asset. If you have an inherited property, you will need to pay a property tax.
- Be aware of your gains and losses.
A capital gain or loss is the difference between the original cost of your property (basis), like your inherited house, and the amount when you sell one of your assets. An inherited home might have been valued at a certain price when it belonged to a predecessor, but if it now belongs to you and you plan to sell it, you might also get a capital gain or loss depending on whether the house sells for more (gain) or less (loss) than the original price.
- Deductible losses.
You can deduct capital losses when you sell investment property but not a property that you have for personal use. When you inherit a house and you intend to use it for residence, you cannot claim a loss unless you sell it at a lower cost than the value of your asset.
- Limit on Losses.
If you’ve had more capital loss than capital gain over the course of the year, you can deduct that difference on your tax return. For example, if your home is $3,000 less than the previous owner’s price, you could be eligible for a tax return.
What Else Do I Have To Know About Selling An Inherited Home?
The value of your asset – is called the “basis”. For example, if you inherited a home, the value of that home is the basis. This value or basis includes any costs taken to improve your home. For example, if you refinished the hardwood or renovated the bathroom, those costs for upgrades would be included in the basis/value of the property. When you look to sell the property, you want to take that final sales price minus your basis to find the capital gain/loss you would need to include when you file for taxes.
However, you want to be careful when determining the basis. The basis is not the price of the home when it was originally bought, but the price of the home when sold in the current home market. So, the home could be worth more or less depending on its condition. Depending on the basis, you could be looking at capital gains (profit on selling the home), in which case you would have to pay taxes on that additional income OR capital losses (lost money on the home), in which case you could be looking at tax reductions.
Regardless, there is a lot to consider and a lot of potential pitfalls when selling your inherited home and filing your taxes on that home properly. For that reason alone, we would recommend working with an accountant to help you figure out the best course of action to take when selling your inherited property. They can provide you with the needed direction to file your taxes properly once your inherited home has been sold.
Bottom line: figuring out the taxes on your unsold house is hard. Taxes alone make selling an inherited property feel like climbing up Mount Everest, and we haven’t even discussed the additional fees that come with selling an unwanted property – legal, real estate fees, closing costs, etc.
We want to make it easier for you. Our company is based on honesty and ease-of-use. House Guys USA is founded on giving you the chance to actually sell your house without all the financial hassle.
Sell Your Inherited Home Fast & Easy!
At House Guys USA, we buy your unwanted property and we buy it fast. We work together with you so that you can sell any house you need quickly and conveniently. Some highlights of what we offer include:
- Selling your house as-is – no extra renovations needed from you or clean up! Leave whatever you don’t want in the home and we will take care of it.
- We will close on the sale of the home in as little as 7 days!
- Walk away with cash in your hands!
When we say we run on honesty, we really mean it. We make you a no-obligation cash offer with no hidden fees. We think of trust as a two-way street – we trust you, and you trust us. We will get your house off your hands as quickly as possible so you can get back to what you need to without stressing. Contact us at 816-892-2132 or email us at email@example.com.