I live in US and my parents live abroad. Being the only son, I will inherit their home after they pass away. When this will happen I intend to sell it. How will I be taxed on this? Is there a way to minimize the tax I have to pay?

Thank you,
Cuptor

IntlTax

You will get a "step up" in basis on the property inherited. If the value of the property is more than $100,000, you need to report the inheritance on IRS Form 3520, Part IV, but you will not be taxed on its receipt.

Cuptor

What do you mean by "step up"?
Also my question is about the tax I will pay when I will sell it.

IntlTax

Step up means that the tax basis (your tax cost) will increase to equal the fair market value of the property you inherit on the date of death. Thus, if you sell the property immediately after you inherit, you will have no U.S. tax imposed because there will be no gain.

Cuptor

Thanks a lot.

AtlantaTaxExpert

Cuptor:

Your parent's "basis" for the property is what they originally paid for it, plus the cost of whatever improvements they have done to the house over the years. If your parents were to sell the property and pay U.S. capital gains on the sale, they would pay taxes on the difference between the basis and the proceeds of the sale.

Now, under current tax law, when your parents die, the basis is "stepped-up" or brought up to the fair market value of the property at the date of their death, or, in some cases, to the six-month anniversary of their death.

The net result is that the difference between the stepped-up basis and the proceeds from the sale is often ZERO after the costs of the sale (commissions, closing costs, etc.) are factored in. If there is no profit, there is NO capital gains to tax.