Philadelphia, PA asked in Estate Planning and Probate for Pennsylvania

Q: My father passed away in October 2021, what would be accepted on how to calculate inheritance tax on the house?

Yes, my sister and I plan on keeping the house for the foreseeable future. How would I go about getting this data, county assessed value and common level ratio, to compute what we owe in tax?

Related Topics:
3 Lawyer Answers
Michael Cherewka
Michael Cherewka
Answered
  • Estate Planning Lawyer
  • Wormleysburg, PA
  • Licensed in Pennsylvania

A: if you are planning to keep the house, the Department of Revenue will usually accept the most recent County Assessed Value multiplied by the current Common Level Ratio as the fair market value on the PA Inheritance Tax Return

1 user found this answer helpful

W. J. Winterstein Jr.
PREMIUM
W. J. Winterstein Jr.
Answered
  • Probate Lawyer
  • Boyertown, PA
  • Licensed in Pennsylvania

A: I agree with the preceding answer, but there's another factor to consider: the valuation for estate tax purposes (where the appreciation in value is taxed at 4.5%) becomes the "stepped-up" basis for future income tax/capital gains purposes. The estate tax 4.5% is a way better rate than the probable applicable rate of federal and state income tax, with capital gains, for you and your sister, when the property is sold. If not for the stepped-up basis, you would be paying a capital gains tax using the original purchase price of the house (from 30 years ago, or more) as the tax basis to compute the taxable gain.

In other words, take the longer view, and be happy about paying the 4.5% to avoid paying a much higher income tax rate in the future.

1 user found this answer helpful

Stephen M. Asbel
PREMIUM
Stephen M. Asbel
Answered
  • Estate Planning Lawyer
  • Philadelphia, PA
  • Licensed in Pennsylvania

A: The inheritance tax on the house is based upon its value on the date of death. The PA Department of Revenue allows a choice of three methods for determining the date of death value. One is gross sale price, if sold within 15 months after date of death, which apparently does not apply to your situation because you want to keep the house for now. Second, you can obtain a professional appraisal and submit that with the inheritance tax return. Or, third, you can take value of the assessment for property taxes and multiply that by the published common level ratio in effect for the county in which the real estate is located as of the date of death.

You should keep in mind that the value you report on the inheritance tax return for the date of death value will also be the amount for the stepped-up basis for the house property that will be used to compute capital gain tax when the property is sold in the future. Because the rate for capital gain tax will be much higher than the 4.5 percent inheritance tax rate, you may want to consider NOT using the lowest possible value for the inheritance tax since it is better to pay more inheritance tax now to save capital gain tax in the future. It should be noted that what capital gain tax you may owe in the future could be impacted by what use you make of the property going forward - use as a personal residence, use as a vacation home, use as rental property - each of those choices will have different impacts on future capital gain tax.

For more detailed advice on this matter, consult an attorney who is experienced in these areas.

1 user found this answer helpful

Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.

The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.

Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.