.... hope this helps
Posted on 02/25/2015 7:08:55 PM PST by SolidRedState
I am not a tax expert, and I don’t play one on TV, but I think that if there is an inheritance tax the inheritance tax is paid by the estate giving the inheritance to you, not by you. If the estate is below a certain amount there is no inheritance tax.
Ah! That makes sense! I feel better.
It probably matters whether the sale was done before the property was transferred to your name or if it was sold before you took possession of it.
Source: Forbes
http://www.forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/
Best to be patient and listen carefully to your tax advisor. The IRS may have a booklet about it.
Was the property sold by you after being distributed to you by the estate, or was it sold by the estate - not sure, but that might make a difference.
Forbes says estate tax exemption is $5.43 million per estate, so you must have inherited a BIG bunch of assets to owe inheritance tax! Also, inheriting tax-deferred assets such as IRAs requires you to pay taxes at your normal rate unless you roll the IRA into an inheritance IRA. Insurance policy death benefits paid directly to a beneficiary are not part of the taxable estate, and such direct benefits are not taxable to the recipient.
Also, keep in mind that when selling off any inherited property, the basis of the property is its value at the time of inheriting, not when the property was purchased, which means if you sell the property right away, there should be no additional tax on the profits from the sale itself.
(BTW, I’m not an expert; the above is just the way I understand these things, and I might be wrong.)
ESTATE AND INHERITANCE TAX by STATE
When my father passed away he had close to One million in property and stocks which was divided between 4 of us. There was no taxes to pay on it except for property taxes until we got the property sold.
A few questions. First, what state are you in? What state was the deceased a resident? There are a number of factors here to consider. Are you talking about state inheritance tax as opposed to federal estate tax? (I am a PA licensed attorney.)
the inheritance tax is paid by the estate giving the inheritance to you, not by you.
yes that is true, but if it is real estate....did you sell it?
You get the adjusted basis of the value of the property as of the date of death. Have a RE professional give you a market price as of the date of death. That is your new stepped up basis that you inherit. If you sell the RE within a year then you will owe short term cap gains if there are any. If you sell it after a year you get long term tax treatment on any gain.
ymmv
Ok...reread the post. The inheritance was real property. You had to sell it to pay the tax. When you inherit assets, such as real estate, you get a stepped up basis. That means that for capital gains tax purposes, your tax basis is the market value at the time of Death. The rub here is that it is the market value reported by the executor. In PA, the executor would have to file an inventory and state a value on which the inheritance tax would be based. Let’s say the property was worth $100,000. If you were a direct descendent (child, grandchild, etc.) the tax would be 4.5% or $4,500. If you were a niece or nephew, the rate goes up to 15%. If the value of the property was correct, and you sold the property for $100,000, then there would be no gain. However, if the value was under reported, and you sell it for $200,000, it’s real FMV, then you would have to pay cap gains tax on the $100,000 difference. In either event, we get to your real question; are the sale proceeds “income” subject to income tax. The answer is no. The only tax the sale would be subject to is capital gains.
If I followed your question, the federal estate tax exemption is irrelevant here because it sounds as if you are asking an income tax question. The estate tax exemption relates to federal estate tax and not income tax due on the sale of inherited property. For 2014 the exemption shields the first $5,340,000 of inherited property from estate tax.
Generally speaking, for federal income tax purposes, property inherited has a tax basis equal to the fair market value on the date the decedent died (the basis is “stepped-up”). Taxable income (cap gain) on the sale is then determined by subtracting the tax basis from the sales price.
As I said, that is a general answer. Depending on the type of property there may be an “alternate valuation date” that could be elected. A “special use valuation” for certain closely-held and farm property can also come into play. There are special basis rules related to qualified conservation easements, too.
It’s dangerous for me to give you a definitive answer because there are too many variables and unknowns.
.... hope this helps
State inheritance tax, no federal inheritance tax.
Was not a large estate. 1 farm, 1 house, some stocks. But the farm and stocks were sizeable because of the skyrocketing land prices here over the last few years and the stocks were at an almost all-time high for that company. So the perceived value is high although the income from the farm is pretty small (barely pays expenses most years but it has been in family for almost a hundred years and we are going to keep it that way) and the stocks are only valuable if they are sold or held. Pays some dividends quarterly but not enough to retire on so I have to continue being a slave for a while. Will sell the house hopefully this year as being a remote landlord is not in my wheel house (150 miles away, but same state).
Had to sell some stocks. No capital gains on the sale because of the timing of the probate and then the sale they did not gain value in between. We were pretty sure with talking to our attorney and discussing it last year with our accountant we had it figured out but one still gets nervous when it gets near tax time and you’re thinking what ifs. And it seems like this took way more time and effort and expense than it really should have since it was so cut and dried we were the only heirs and trustees.
I think I have my answer.
Thanks for all the answers and concern.
I knew fellow FReepers could alleviate my worries. I can now do with a little less nerves until the tax man cometh.
I remember from 20 years ago that if you inherited an asset, such as land or stocks, your basis in the asset would be fair market value at the time of death. If the asset was given to you before grandma (for example) died your basis would be the fair market value of the asset when grandma bought it. If you sold the asset that was given to you before grandma died you would have a large capital gain and big tax. If you inherited the asset after grandma died and subsequently sold the asset the capital gain would probably be much less.
Bottom line, it is better to inherit an asset than to have it given to you before the grantor (giver)dies.
There would be no tax on that sale (other than local transfer taxes, etc.).
Get a lawyer. Don’t ask people here about things like this. Get professional advice.
We were pretty sure with talking to our attorney and discussing it last year with our accountant we had it figured out but one still gets nervous when it gets near tax time and you’re thinking what ifs
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