Inheriting a home can be financially beneficial, yet be a bitter experience at the same time… You are left with a property and you can use the value of the inherited property to improve your life, but you are still mourning the loss of a loved one.
Many people ask themselves “what are the tax consequences when selling a house I inherited in San Antonio, Texas?” The tax laws have been designed in a way that should not add any more burden to you upon inheriting the property. This means that the financial consequences are less daunting than what you might expect, which is good news for you.
The relevant laws seem fairly simple at first glance, but they can get complicated when you factor in all the legal conditions and nuances. The short version is that if you made gains, you’ll owe taxes, and if you had a loss, you may have a tax deduction.
But then it gets complicated because whether you made a profit or had a loss also depends on when the decedent died and the use you made of the house.
Tax Consequences when selling a house I inherited in San Antonio, Texas
Taxation of Gains/Losses
The tax consequences when selling an inherited house in San Antonio include being subject to capital gains taxes. Capital gains or losses in real estate refer to what you earn from selling property that you use for either personal or investment purposes. If you decide to sell an inherited home in San Antonio, that sale is regarded as capital gain or loss(based on the basis: see below) for the purpose of income tax.
In most cases, in order for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. But, because inherited properties are calculated using a stepped-up basis, you may benefit from selling the property sooner instead of waiting and having the property increase in value.
Further, losses on personal property cannot be claimed as a tax deduction. So if you ever used the inherited house as your personal home, it became personal property, and you can’t deduct a loss if you sell it.
Calculation of Basis
In order to understand how you’ll be taxed having inherited a home, you need to know how the basis is calculated. Basis, in this case, refers to the asset cost for the purpose of the calculation of capital gains along with other taxes. What this means is that the capital gains taxes you owe are based on gains above the property value at the time of the decedent’s death – not what the decedent paid for the house.
Inherited properties are subject to a stepped-up basis. This means when you inherit a property, your basis is the amount the property is worth the day the person dies, not the day the person bought the property.
When a person dies, the value or basis of their property in San Antonio is increased to the market value as at the time of their death. Here’s how it is different than if you buy it and then you sell it.
If a person purchased a home 20 years ago for $15,000 and later sold that property for $65,000, then they would have to pay capital gains on $50,000.
But if you inherit a property worth $65,000 and sell it for $65,000, then you will not have to pay capital gains. If you choose to wait and sell the property later, you will have to pay more taxes if the value of the property goes up.
If you never lived in the house and if it sells for less than what the fair market value was at the time of death, then you have a deductible loss. Just be aware that only $3,000 of such losses can be deducted each year against your ordinary income. Anything above that $3,000 will have to be carried over as deductions in future years.
Home Sale Tax Exclusion
Inherited homes do not qualify for the $250,000/$500,000 home tax sale exclusion. TO qualify for this exclusion, the property has to have been your main residence for a certain period of time.
This tax exclusion was designed to protect homeowners from losing a ton of money to taxes when they sell their personal homes, not to be used when someone inherits a property.
Good news…you may not need this exclusion because of the stepped-up basis that you received for your inherited property.
Reporting the Sale
Upon selling an inherited home, you have to report it for the income tax purposes. The IRS requires that you report the sale of an inherited property whether you make money or not.
You should first calculate your capital gain or loss. This is done by subtracting the basis from the sale amount. You should then report that amount to the necessary authorities.
To report the gain or loss, you need to use the standard document for this purpose, the IRS Schedule D. You also have to include the gain or loss on your personal Form 1040 tax return. And make sure you use the Form 1040 (and not the Form 1040A or Form 1040EZ) for the year in which you sold the inherited house.
In some cases, the executor has to file an estate tax return to report the inherited house. But this is only if the estate exceeds the inflation-adjusted exemption amount. Many times this is not a necessary step.
Other Things To Consider
Having an inherited home can be stressful given the fact that you have new property to take care of and pay taxes for it at the same time… You should go through the probate process in San Antonio if the house is to be transferred through a will, as the first step to selling your home. The court will then authorize you to proceed as you wish.
If there are any other individuals involved in the inheritance, you should first agree with each other on that decision. You can then file a petition requesting the court to allow you to sell the property.
If there is no will, then you can contact someone with experience in inherited properties to find out what you need to do to sell the property.
You should then consider how much tax you are to pay. This will be paid against the capital gains or losses resulting from the sale of the house. Should you make repairs to the inherited property? Or will you just be spending extra money that you won’t get back?
You can call Sell My San Antonio House now at (210) 201-6644 to undertake a smooth and legitimate sale of your home. We are local here in San Antonio Texas and we know the market here better than anyone else. If you are still asking yourself what are the tax consequences when selling a house I inherited in San Antonio, then we would be happy to discuss it with you in more detail.
Selling an inherited house can provide quite a relief. In addition to that, choosing to sell the property to an investor is a basic, simple, and fast process. Please contact us for inquiries on how to go about things when selling your inherited home in San Antonio and we will be glad to help you.
We hope you have found this article helpful and informative. We are not accountants or tax professionals so we always recommend that you contact a certified tax professional to answer any questions that you have.