Q: If I inherited my father's house after he passes, and I sell it, do I get hit with capital gains tax?
My father owns a house outright in California. I am the only child, and the house is in trust to be inherited down to me. My mother passed 2 years ago. If I in turn sell the house after my dad passes, do I get hit with capital gains tax?
A: When your mother passed two years ago, the property received a "step-up" in basis to market value at that time. When your father dies, the property will get a second step-up in basis to the then market value. This assumes the property was community property and that the trust did not require assets to be split at the time of the death of your mother. If there is any doubt about that, your father should have an attorney review the document now as there are ways to fix it if it is not.
Should you decide to keep the house after your father passes, it should not be reassessed. This means you would continue paying the same property taxes your parents were paying since Proposition 13 came into being.
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A: It is not possible to answer your question without a clear understanding of the revocability and tax characteristics of the trust when your mom died and again when your dad died and what the character of the property was to them, e.g, joint tenancy or community property. There are way too many possibilities. Most likely, under the typical estate plan for a married couple in California, the property got a full step up in basis when your dad died, meaning the heirs would only be taxed on gains in value since his date of death. However, that is just a guess. The only way to know for certain is to have an attorney review the relevant documents.
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