Bowie, MD asked in Real Estate Law and Tax Law for Maryland

Q: My mother passed and I am selling her house. She had a reverse mortgage with balance of 393,000. The appraised value

is 473,300. How much would the estate tax be? I live in Md

Related Topics:
3 Lawyer Answers
Cedulie Renee Laumann
Cedulie Renee Laumann
  • Crownsville, MD
  • Licensed in Maryland

A: Maryland has several different "death taxes" and it really isn't possible to define the taxes without knowing the full context. If an attorney is assisting with the estate they should be able to discuss these in depth based on the specifics of your situation. However, generally speaking an estate in Maryland might encounter federal death taxes, state death taxes, state inheritance tax, and/or estate income tax in addition to probate fees.

First, the general "estate tax" in Maryland does not apply until someone gives away $5M. Assuming that your mom did not have total assets over $5M there would be neither federal or state death taxes.

Second, Maryland has an "inheritance tax" that does not depend on how much someone gives away but WHO they give it to. Generally speaking immediate family members are exempt, others will pay either 10% or 11.111% inheritance tax. So whether or what tax might be owed from the proceeds of your mom's house will vary greatly depending on who inherits her estate and what she spelled out in her Will.

Third, Maryland imposes a "probate fee" on the value of the gross probate estate that looks at the value of the estate assets BEFORE subtracting debts. This is a relatively modest fee and is based on "tiers" or brackets and you'd need to add up the value of the house (assuming the house was in the probate estate) plus any other estate assets. If the total assets are $500,000 - $1 million the probate fee would be $1,000. If however the house was the only probate asset and under $500,000 the probate fee would be $200 (assuming the estate was opened after October 2022 when the probate fees changed).

Fourth, Capital Gains taxes might apply if there have been "gains" or appreciation in asset value since your mom's death. Since heirs get a "stepped up basis" to the date of death value, generally this is not an issue if the house is sold shortly after death but it can be an issue if years have passed. This is a question to pose with your accountant or tax professional.

While not legal advice, I hope this helps!

Mark Oakley
Mark Oakley
  • Rockville, MD
  • Licensed in Maryland

A: If this is the primary asset and all estate assets are being distributed to a spouse or lineal heirs (children, grandchildren, siblings, parents) there are no inheritance taxes, and no estate tax for estates having a value below $5,000,000. For calculating estate value for estate tax purposes, assets passing by way of trust or transfer-on-death beneficiaries over which the decedent had control during their lifetime also count toward the $5 Million tax threshold. But only amounts in excess of the $5 Million would be subject to an estate tax. There will be no capital gains tax on the increase in value of the home since your mother purchased it either, since upon her death the tax basis in the property is stepped-up to the fair market value of the home at the time of her death. Any increase in value of the home since the date of her death would be considered taxable to the estate upon its sale, but that would likely be small. My guess is you will owe little or no taxes.

James L. Arrasmith
James L. Arrasmith pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Tax Law Lawyer
  • Sacramento, CA

A: When dealing with the sale of a property from an estate, such as your mother's house with a reverse mortgage, the primary concern for taxes would typically involve capital gains tax, estate tax, or inheritance tax, depending on various factors including the total value of the estate and the specific laws of your state. In Maryland, estate tax is applicable to estates exceeding a certain threshold, which has been set at $5 million for recent years. Given the information provided, if the estate's total value (including the house) is below this threshold, it may not be subject to Maryland estate tax.

The difference between the appraised value of the house ($473,300) and the reverse mortgage balance ($393,000) indicates equity of $80,300. This amount represents what the estate would potentially net from the sale before any selling costs or other debts of the estate are considered. This equity itself does not directly translate to an estate tax but could contribute to the total value of the estate being assessed for tax purposes.

It's important to note that estate taxes are calculated based on the total value of the estate, not on individual transactions within the estate. If your mother's total estate value is under the $5 million mark, there likely won't be Maryland estate tax due. However, for a precise calculation and understanding of potential tax liabilities, including any possible capital gains tax from selling the property, consulting with a tax professional or estate attorney would be advisable. They can provide tailored advice based on the full scope of the estate and current tax laws.

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.