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How Do We Calculate the Taxes on Property We Inherited from Our Mother?

  • September 26th, 2019
Q
Before she died, our mother put her house in the name of her six children. No money was transferred. After she died, the children sold the house for $70,000 and each received one-sixth of the proceeds after the sale expenses. A couple of years before the sale, the house was appraised at $87,000, but due to the economy, $70,000 was the best offer. What is needed to pay taxes? The house was very old and in our family for more than 90 years. We do not know the value of it when it was originally purchased or the cost of any improvements. What advice can you give?  
A

If your mother continued to live in the house after she transferred it to her children, the IRS deems the property to be in her taxable estate even though she gave it away before her death. This is irrelevant for estate tax purposes since only estates over $11.2 million are taxable, but it’s good for capital gains purposes. As a result of being in your mother’s estate, the basis for the house was changed on her death to its fair market value on that date. This is often called a “step-up” in basis. As a result, the only gain that is taxed to the children is the difference between the fair market value when she died and the net proceeds of the sale, which is probably zero, resulting in no tax.

For more information on paying capital gains on property you inherit, click here.

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Last Modified: 09/26/2019

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