Q: Is the sale of an after death inheritance homeTaxable to the siblings that benefited from the gift?
2006, Maryland, mother died, left home to 2 daughters, paid in full owner, now they want to sell in 2018. Not sure how this $ will be taxed
A: There are at least 5 different taxes that can come into play when someone dies and transfers property. These include inheritance tax, estate/gift tax, income taxes and transfer/recordation taxes.
In Maryland, property going to a child does not have state inheritance tax. State and federal estate/gift (or death) taxes are different than inheritance tax and only apply for estates over a certain threshold although the estate includes both probate and non-probate taxes. For many years the threshold was $1 million before Maryland death taxes kicked in (it is higher now). There is also a probate tax/fee but that is based on the value of the probate estate and would have been paid when the estate was administered.
Other taxes, such as income tax or transfer/recordation tax will depend on the specific scenario.
Usually if the paperwork was done properly in the estate, people inheriting real estate only would pay transfer/recordation tax when they go to sell, and perhaps capital gains tax based on any increase in value between the death and the sale.
The above offers very general information and is not designed to advise on a specific situation. You're encouraged to consult with legal and/or tax professionals to get specific advice about a particular situation.
A: When the two daughters inherited the home, their tax basis in the property became the fair market value of the home as of the date of their mother’s death. When they sell the property today, if it sells for more than their tax basis in the property, then they will pay capital gains tax on the net gain over their tax basis. For example, if the house was worth $200,000 on their mother’s death, and they sold it 10 years later for $250,000, and netted $230,000 after closing costs, they would pay capital gains tax on $30,000. There are many possible additional deductions and exemptions that may apply to the daughters’ tax liability, depending on other facts, such as deductions for capital improvements to the property, or if one or both used the property as their primary residence, so they should consult an accountant on these details.
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