Inheriting a home can be quite an experience. While you’re still mourning the loss of a loved one, you now also have to consider what to do with that person’s belongings and property. One of the many questions you may ask yourself is “what are the tax consequences when selling a house I inherited?”
In this article, we will help you better understand the basic tax consequences of selling an inherited house in the Washington, DC metro area.
Calculation of Basis
To understand how you will be taxed following the inheritance of a home, you need to know how basis is calculated. Basis refers to the asset cost. When a person passes away, the value or basis of their property is “stepped up” or reset to the current market value. For instance, if a person purchased a home 20 years ago for $25,000 and it now has a market value of $100,000, your basis is $100,000.
Taxation of Gains/Losses
Capital gains or losses refer to what you earn from selling the property. Going back to our previous example, if the owner was still alive to sell the home himself, the basis is $25,000 and the capital gain is $75,000 (the difference between the basis and the current market value). He would pay taxes on that profit.
However, when you inherit a house, your basis resets to the current market value. If you sell it right away for the adjusted cost basis of $100,000, you wouldn’t owe any capital gains taxes. If however you hold on to the property and sell it in year for $150,000, you will owe capital gains on $50,000 (the difference between sale value and the value it had when you inherited it).
If you sell the property shortly after you inherit it for less than your current cost basis, say for $70,000, then you are eligible to claim a capital loss on your taxes.
Selling for a Loss
Why would someone sell for less than the basis value? Great question! In many cases, inherited homes need a lot of repairs. The person who inherited the house may not
- live nearby or
- have the money to fix it up or
- want to put in the extensive time and effort required to oversee renovations contractors.
In these cases, it’s easier and more cost effective to sell the house “as-is.” The seller still gets a fair amount of cash out of the sale and is saved from the hassle of having to manage the utilities, taxes and security of an extra property. That was the case for Alicia.
If you want to sell an inherited house and need help understanding how much you can get for it, call Express Homebuyers now at (877) 804-5252 for an fair cash offer in only 7 minutes. We can help you manage a smooth and fast sale of your house. Of fill out the form below to get started. We buy houses in Washington, DC. We buy houses in Maryland. And we buy houses in Virginia.