What Tax Liabilities Accompany Inherited Real Estate?

Lesley Mast | February 26th, 2014

So you just inherited some real estate. You’re probably now wondering – is this a blessing or a curse? From the tax perspective, of course. And that’s a good question to ask. Just because you inherit something doesn’t mean that you’re free and clear of any potential tax liabilities. Depending on how you use the property and if you sell it will determine if you have a taxable situation. So here’s what you should know about taxes and inherited real estate. 

Property Taxes on Inherited Real Estate

The act of inheriting a piece of real estate may not have a great deal of tax liabilities in and of itself. The biggest thing to be aware of is that as soon as your inherited real estate is legally yours, you may have to immediately begin paying property taxes. And these property tax payments will be required until you sell the property. So it’s important that you’re prepared to pay these property taxes if you find yourself in this situation.

Capital Gains Tax on Inherited Real Estate

The biggest area of tax liability as it relates to inherited real estate comes when you decide to sell the property. There’s the possibility that you’ll have to pay a capital gains tax on your inherited piece of property. So how do you know how much you might owe for capital gains tax? You take whatever you receive from the sale of the property and subtract from that the fair market value at the date of death of the original owner. You’ll either have a gain or a loss. If it’s a gain, that’s when you pay the capital gains tax. Capital gains tax rates vary depending on your income level. Most individuals will find they will pay anywhere between zero to 20 percent in capital gains tax. If it’s a loss, and you have used the inherited house only for personal purposes, any loss from the sale would not be allowed.

Deductible Expenses

There’s some good news though! Some expenses you incur through the process of selling the property may be eligible for a tax deduction or a reduction in the selling price. Such items may include:

  • Closing costs of the sale
  • Commission fees
  • Real estate taxes
  • Title insurance or title-related charges
  • Attorneys’ fees in connection with the property

Inheritance and Tax Help

If you find yourself in this situation and need help determining the tax liability you may incur, contact Rea & Associates. Our team of Ohio tax professionals can help you make sense of all of the variables and help you know for sure what you’ll owe on your inherited property.

Author: Lesley Mast, CPA (Wooster office)

Looking for more information on taxes and estate planning? Check out these blog posts:

Does Ohio Have an Estate Tax?

How Will Selling A House From An Estate Impact My Taxes? 

How Do You Value Property for an Estate in Ohio?

 

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