“I inherited a house how can I sell it?”
We Buy Houses in Cypress TX and we know that sometimes life catches you by surprise. If you have inherited a house, there is only one way that happens…and we are sorry for your loss. Maybe you were expecting a close loved one to leave you a house, or maybe it was a distant relative that caught you off guard. Either way, it is important to understand one of the aspects that go with an inheritance, and that is the taxes. We will discuss the tax consequences for selling an inherited house in Cypress TX in this article.
What Are the Tax Consequences When Selling a House Inherited in HOUSTON?
The tax consequences when selling a house inherited in HOUSTON can be hard to understand and untangle much of the time.
The laws may seem fairly simple at first glance, but they 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. 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. If the house is in probate there are some other items to consider including different expenses.
The Reporting of 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.
The determination of the gain or loss on a house sale depends on the “basis” of the house. As the basis goes higher, the taxable gain from a sale decreases. There are, however, different rules for the sale of an inherited house that allow for a special stepped-up basis.
The Losses Taxes or Capital Gains
The tax consequences when selling a house inherited in HOUSTON include being subject to capital gains taxes. Capital gains or losses are those that stem from the sale of items you use for personal or investment purposes, such as stocks or a house. So for income tax purposes, the sale of an inherited house in HOUSTON is treated as a capital gain or loss.
The catch with selling an inherited house is that a gain or loss is considered a long-term gain or loss. 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.
The Sale of the Inherited House and Reporting It
Obviously, when you sell an inherited house, you have to report the sale (and gains or losses) when you file your income tax return. To calculate the gain or loss, you have to subtract the basis from what you received for the sale.
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 Form 1040 (and not Form 1040A or Form 1040EZ) for the year in which you sold the inherited house.
Determining The Basis
The basis of the house depends largely on when it was inherited. In general, the basis is the fair market value on the date of the decedent’s death. 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.
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.
Selling A Home You Inherited To A Home Buyer
At Brilliant Day Homes our experience will help you in dealing with inherited homes and probate situations. The tax consequences when selling a house inherited in HOUSTON can be complex and difficult to understand at best. If you are facing a situation where you need to sell an inherited house in Houston, we would like to buy it. If you just need some more information to make a good decision, reach out to us. If we can’t answer your question directly, we work with attorneys that find out all of the answers for you.