My brother and I inherited my grandmothers home in California in 1996. My brother has been living in the home since then. We both have equal 50/50 ownership in this property. The house was long ago paid for and there is no mortgage. My brother has now obtained a mortgage for half of the current value ( actually about 24,000 less than current value ) to buy me out of my half. The bank is going to directly deposit the money (approx 200K) into my bank account. Now here is my question... Are there any taxes that I must pay on that 200K from the buyout ?

When your grandmother's estate was processed, the house should have been valued. You will need to pay Capital Gains on the difference between the value at the time and what your brother is paying to buy you out.

Thanks Scott for your answer, Now here's the next question... If I take the 200K and reinvest it back into real estate (buy my own home) do I still pay the capital gains tax ?

I would think so. What you use the money for has no bearing. If you were selling your residence and buying one, you would be able to defer the gain. But that's not the case.

I would wait for ATE to confirm this though.

The exclusion from paying capital gains on real estate applies only to your principal residence, with the added requirement that you must have lived there for at least 2 of the previous 5 years. It appears from your description that your gain does not meet these criteria, so yes, you have to pay taxes on the gain realized between the time you inherited it and you sell it.

Yes, capital gains taxes is due. File it using Form 4747 and Schedule D.