[Gayle Magness]

My husband and I recently moved back to Georgia to help care for my aging father. My sister, and only sibling, still lives in Florida. She is the intended executor of our father's estate. Since my husband and I have not purchased a house in Georgia, my father has indicated that he wishes to leave his house (paid off, no mortgage) to me. His will has always read that his estate would be divided equally between my sister and me, and I assume it still does. My sister mentioned to me recently that Dad had talked to her about this and she does not have a problem with it.
1. Am I required to pay tax on the value of the house when I inherit it?
2. Should this be stipulated in my dad's will, even if my sister/executor agrees with it?
3. If we should choose to sell the house and divide the profit, is it fully taxable on Schedule D or is there a limit?
Thanks for your help!

[StaticFX]

1. No
2. Yes, I would. JUST to make sure there is no argument from your sister.
3. That part I can't remember from when my mom passed in 01. I know we did pay taxes.. just don't remember the details.

[ebaines]

StaticFX is correct on questions 1 and 2 - GA has no inheritance tax so you as the heir owe nothing to the state when you inherit property. Regarding question 3 - when you sell a property that you inherit the cost basis is the fair market value as of the data of death. In other words, for inherited property the cost basis is automatically "stepped up." So you pay capital gains on the profit which is the difference between selling price (after selling expenses) and the fair market value on the date of death. However, since this is a house, you may be exempt from capital gains when you sell it IF you have lived in it for at least two of the previous 5 years.

One thing which is a little confused in your questions - if your sister agrees that the house is yours, then your name goes on the title and hence you keep the profit when it sells, and pay any taxes that may be due. If you split the profits with your sister, that would be considered a gift from you to her, which depending on the size of the gift may trigger gift tax implications.

[ScottGem]

I agree that it would be better to stipulate that ypou get the house in the will. What you need to determine is whether the estate's value will be more than double the value of the house. Because if its not, you may havde to buy out your sister. For example, lets say the house is worth $250K and there are an additional $150K in cash investments. Since the estate would be worth $400K, you're getting the house would mean you are getting more than half.

So I would amend the will something like this:

I wish the value of my estate to be divided equally between my two daughters. However, <insert your name> is to receive my home located at <insert address> as part of her share.

If, the value of the house should equal more than half my estate, then <insert your name> will recompense <enter sister's name> for the overage.

[Gayle Magness]

Thank you very much for your valued information. This helps me a great deal, as I was unable to sort through the IRS site and discover what you all have explained so simply.