Q: What tax/fees/costs are associated with inheriting a piece of property? It's less than 10 million and in AL.
My mom thinks that she has to do some weird legal workaround so that when we inherit her property we won't have to lose a ton of money on inheritance. I've researched as much as I can but she's not convinced. I've looked at AL and federal tax laws and can't find anything that says we will owe money (besides normal property tax) after inheriting the property.
Your mother may be worried about inheritance taxes, which are taxes on what you inherit. Fortunately, there are no federal inheritance taxes, and, just as well, there are no Alabama inheritance taxes. She will not pay taxes on what she inherits (unless, perhaps, she moves quickly to New Jersey, Maryland, Pennsylvania, Kentucky, Nebraska, or Iowa).
Now, she might have to worry about another type of tax, which is the capital gains tax. Let's say she inherited a 1,000 acre farm. Let's say that on the day her relative died, the farm was worth $3,000 per acre, for a total value of $3,000,000. Let's say your mother decides to sell the farm after several years, but, with real estate prices soaring, the farm sells for $5,000 per acre, or $5,000,000. Because the farm has increased in value by $2,000,000 since your mother inherited it, she will likely have to pay tax on her capital gains, minus capital expenses she has put into the property, unless she has preplanned the quick purchase of a similar property with those capital gains. (That is called a "1031 exchange".) In short, when you sell inherited property, whether land or stocks, you may owe capital gains taxes on the increase in value.
When your mother dies, it is possible she might have a large net worth, so large that her estate would owe "estate taxes." Estate taxes are not levied upon regular folks. Right now, under federal law, your estate needs to be worth more than $12 million to meet the threshold for owing estate taxes. But, Congress has power to lower that threshold and probably will. Alabama does not levy taxes on estates, but Uncle Sam does, if the estate is large enough.
Finally, your mother needs an estate plan (as well as a very good accountant). She has enough wealth to bring out the needy or greedy side of people she loves. She needs a will that appoints a clear-headed, responsible executor upon her death to pay her last bills and distribute her assets to her designated heirs. Between now and her death, she needs a financial power of attorney and a medical power of attorney, in case she is in the hospital and unable to pay her own bills or to speak for herself. There is a good chance she needs to create a trust to (1) avoid having to probate her will, and/or (2) avoid estate taxes (if her estate is very large). Estate planning is "preventive medicine" which usually reduces or eliminates conflicts, pain, hurt, and litigation among heirs.
Estate planning is what I do. Before I became a lawyer, I was a teacher. I am patient and can explain the details to your mother. Please feel free to call.
A: I will complete my answer by saying the costs and fees of inheriting property would include a good accountant, because substantial or complex property requires excellent accounting. In most cases, there would be no substantial transfer tax on inherited real estate when you record a deed in the county courthouse. There are some exceptions. Call me if you need more help. The first call is free.
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