Silver Spring, MD asked in Tax Law for Maryland

Q: Tax advice for inheriting half a condo

In 1998 my parents helped me buy a condo. The deed has my name and my father's name on it. I was told at the time that when he died I would automatically inherit his share of the condo, with no taxes owed. He died in 2011 and I have not tried to change the deed and I'm worried about any tax implications. Would appreciate advice. Thanks in advice!

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2 Lawyer Answers
Theodore David Vicknair Sr.
Theodore David Vicknair Sr.
  • Tax Law Lawyer
  • Mandeville, LA

A: So this is clear under federal income tax law: inheritances are not income. States that have an income tax *generally* piggy back the federal law. So, generally, the only income tax implications that may be tangentially applicable is the "step-up" in income tax basis for the eventual sale of the condo. But that's not the import of your question.

As far as state inheritance taxes and state estate taxes, I did a little research and found out that Florida does not have an inheritance tax. However, your question eminates from Maryland. Was your father a resident of the state of Maryland on his death, or the state of Florida? I think Maryland may have an inheritance tax. If he was a resident of Maryland, he may be subject to the tax even if the property was situated in Florida. This is a state-specific feather of state inheritance taxes. If I lived in Maryland, and if I were a betting man, I would say his 1/2 of the condo would be subject to the Maryland tax (assuming there is one).

As far as federal estate taxes, they only apply to persons worth $5 million or more for 2011 (his year of death). So unless your father's estate exceeded that amount, or may have come close, there *should* be no federal estate tax implications.

Check with a Florida attorney. Florida, at least many years ago, had a "real estate transfer tax". Kind of like a sales tax on real estate. I am a Louisiana attorney, and many years ago (about 2003) I had a Louisiana client and at the time it was an open question under Fla. law whether his Fla. condo on the panhandle was going to be subject to the real estate transfer tax if the condo were to be contributed to a Qualified Personal Residence Trust. It's not likely, but it is remotely possible that your father's share would be subject to this transfer tax upon his death. You will just have to check with local counsel on that point.

Cedulie Renee Laumann
Cedulie Renee Laumann
  • Crownsville, MD
  • Licensed in Maryland

A: Your situation seems to involve a hybrid -- if your name was put on the property while your father was living, and you inherited the balance when your father died you need to separately figure out the capital gains for each half. The very general rule is that anything someone inherits gets a "stepped up" basis and anything transferred during the original owner's lifetime gets the original owner's basis. So usually in this situation you'd need to figure out the separate basis for each half.

Capital gains tax is calculated and paid when the property is sold. Ordinarily transferring the property in an estate (or out of a trust) does not trigger payment of capital gains tax. It isn't clear from the post, though, whether you inherited by deed (say as a joint tenant) or through will (in which case the 1/2 of the property would need to go through probate).

A host of different tax implications can come into play when someone dies owning property in this state. There is a federal death tax (only applicable for very large estates), a state death tax (only applicable to substantial estates), a state inheritance tax (some family members are exempt from inheritance tax) and capital gains tax. There is also a probate "fee" which while not technically a tax applies to any property passing through probate. Under current Maryland law, a child pays no inheritance tax on property they inherit from a parent. They may need to pay other types of taxes, depending on the situation.

You are strongly encouraged to seek professional advice relevant to your situation. A competent estate attorney in this state should be able to tell you whether you "automatically" inherited or not based on the deed, and a competent tax professional or accountant should be able to help you sort through any capital gains issues. While not legal advice, I hope that this helps!

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