Q: Do I pay taxes on my 25% share of inherited industrial property in AZ sold now?

A: If the property was included in your father’s taxable estate when he died, which is likely, then its basis is now date of death value. If you sell you would only need to pay taxes on the appreciation since date of death.

A: Since you inherited the 25% share of the industrial property, the IRS typically treats inherited property differently from property that you purchased. The property’s value is "stepped up" to its fair market value at the time of your mother’s death, meaning you don’t owe taxes on the property’s appreciation before that date. When the property is sold, the capital gains tax is calculated based on the difference between the sale price and the stepped-up basis.

However, if you choose to take out cash instead of reinvesting the proceeds in another 1031 Exchange, you will likely owe taxes on the capital gains from the sale of your 25% share. The amount of taxes you pay will depend on how much the property has appreciated since the time of inheritance. If you go through with a 1031 Exchange, you may defer paying taxes, as long as you reinvest the proceeds in like-kind property.

It’s important to carefully consider whether you want to reinvest in another 1031 Exchange or take the cash. Both options have tax implications that may affect your overall financial situation, and it would be helpful to consult a tax advisor or real estate professional to determine which path is most beneficial for you.