Ask Experts Questions for FREE Help !
Ask
    markst's Avatar
    markst Posts: 1, Reputation: 1
    New Member
     
    #1

    Jun 12, 2011, 10:51 AM
    Capital Gains and Inheritance.
    My mom is in hospice and doesn't have much longer to live. My first question is should we sell her house before she dies and split it 4 ways between siblings. IF so how would capital gains be handled. Second question is should we wait until after she dies to split it up and of course how is capital gains handled that way ./. Appreciate the help.
    hkstroud's Avatar
    hkstroud Posts: 11,929, Reputation: 899
    Home Improvement & Construction Expert
     
    #2

    Jun 12, 2011, 04:28 PM

    If sold while you mother is still alive there will be capital gains tax. The capital gains tax will apply to the difference between the cost and the selling price.

    If sold after her death, by the heirs, the capital gains tax will only apply to the increased value from the date of inheritance to the date of sale. In other words, the cost "basis" used in computing capital gains tax will be the value at time if inheritance.

    If you plan on selling the property immediately after inheritance there will not be any capital gains and no capital gains tax.

    If you plan on holding on the property for any length of time be sure to get the property appraised at the time of inheritance and for the highest possible value.

    That will minimize capital gains tax if you hold on to the property for a number of years. I suggest that you get the appraisal done regardless of what you plan on doing. While you won't have capital gains tax if you sell immediately you could have a capital loss if you end up selling for less than the appraised value. When it comes to taxes, a loss is a good thing.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
    Expert
     
    #3

    Jun 13, 2011, 07:07 AM

    Just to clarify what hkstroud wrote:

    If your mother gifts the property to the 4 children she (or her executor after she dies) must file a Gift Tax return with the IRS (assuming that the property is worth at least 4 times the annual gift tax exclusion: 4 x $13,500 = $54K). She won't actually owe any gift tax, unless the value of the property exceeds $1M. The cost basis for each of the 4 children is the 1/4 of her current cost basis, so when you sell you will each owe capital gains tax on your portion of the gain.

    It's better to wait. If you were to inherit the property rather than receive it as a gift your cost basis is automatically "stepped up" to the fair market value of the property as of the data of death (or at the executor's option 6 monhs after death). So as hkstroud noted - if you sell shortly after that your capital gans are likely to be just a small amount or perhaps 0. However, if you sell at a loss you cannot deduct the loss - since the property is considered personal (not investment propoerty) and you can't deduct losses on personal property. So in this case a loss would not be a good thing.

Not your question? Ask your question View similar questions

 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

Which to use, Inheritance or Capital Gains Tax? [ 1 Answers ]

I inherited property in 2001 that I sold in 2009. I am not sure how it should be taxed. The property was trust set up by my Grandfater, it was in mine and my Uncle's name and ownership transferred to us on his death. We then split the property between us and had our own separate deeds made. I just...

Inheritance of Property-Capital Gains taxes [ 2 Answers ]

If a spouse inherits multiple properties upon death that were in the deceased name, does that spouse need to get those properties assessed at the time of death so that the properties value can be determined if the spouse decides to sell any property later? How many assessments are needed for each...

Capital gains on inheritance [ 1 Answers ]

In 2007 my husband inherited money from his late father's estate. It was not enough to have to pay the "InhertianceTax". Does he have to pay "Capital Gains" and how is the $ reported on his income tax?

Capital Gains/Inheritance [ 3 Answers ]

Is a small inheritance from my mother of $20,000 subject to capital gains taxes?

Inheritance and capital gains tax [ 3 Answers ]

My mother has suddenly changed her mind and decided to leave the house to the granddaughter. She bought her house in California for $8,900 in 1950. It has been paid off for 25 years. Value is now at $550,000 My question is can my neice just move in and keep the house without selling? Are there...


View more questions Search