Inheriting a home can be both a financial opportunity and an emotional challenge. While the property itself may hold sentimental value, deciding what to do with it can be a complex process, especially when considering the tax implications of selling. Fortunately, tax laws are structured in a way that generally minimizes the financial burden on those who inherit property. Understanding these tax consequences can help you make an informed decision about whether to keep or sell the inherited house.
Understanding the Step-Up in Basis and Capital Gains Tax
One of the most significant tax benefits of inheriting a property is the step-up in basis. When a person inherits a home, the property’s value is adjusted to its fair market value at the time of the previous owner’s death. This means that if you decide to sell the house, your capital gains tax is calculated based on the difference between the selling price and the market value at the time of inheritance, rather than what the original owner paid for it.
For example, if your loved one originally purchased the home for $100,000 but its market value at the time of their passing was $300,000, and you later sell it for $320,000, you would only be taxed on the $20,000 gain rather than the $220,000 difference from the original purchase price.
Do You Have to Pay Florida or Federal Taxes on an Inherited Home?
Florida does not impose a state income tax, which is a significant advantage for those selling inherited property. This means you only need to consider federal capital gains taxes. If you sell the home shortly after inheriting it and the price hasn’t changed significantly, you may owe little to no capital gains tax. However, if you hold onto the property for a long time and its value appreciates, any gain beyond the stepped-up basis could be subject to taxation.
Additionally, Florida does not have an estate tax or inheritance tax, meaning you will not owe state-level taxes simply for receiving the property. However, large estates may still be subject to federal estate taxes if their total value exceeds the exemption threshold, which changes periodically.
Tax Exemptions and Deductions When Selling an Inherited Property
If you decide to live in the inherited property as your primary residence, you may qualify for the homeowner’s exemption or even the capital gains tax exclusion if you sell it later. The IRS allows individuals to exclude up to $250,000 ($500,000 for married couples) of capital gains from taxation if they have lived in the home for at least two of the last five years before selling.
For those who choose to rent the inherited property before selling, rental income will be subject to income tax, but you may also qualify for deductions on expenses related to maintaining and managing the property.
Costs and Liabilities of Keeping an Inherited House
Holding onto an inherited property comes with ongoing expenses that should be carefully considered. Property taxes, homeowners’ insurance, maintenance costs, and potential homeowners association (HOA) fees can add up over time. If multiple heirs share ownership, disagreements over who pays for these expenses can arise, making the sale of the property a more practical choice. Selling the home allows you to avoid these long-term financial obligations and divide the proceeds among heirs more easily.
Selling an Inherited House Fast for a Cash Offer
Many heirs prefer to sell an inherited home quickly to avoid ongoing expenses like property taxes, maintenance costs, and homeowner’s insurance. A cash sale can provide a fast and hassle-free way to liquidate the asset without the complexities of listing it on the market, dealing with potential buyers, or making costly repairs.
At Take Flight Home Buyers, we specialize in purchasing inherited homes for cash, allowing you to sell your property without the stress of traditional real estate transactions. By working with us, you can avoid long waiting periods, realtor commissions, and potential market fluctuations. If you’re considering selling an inherited home in Florida, contact us today for a no-obligation cash offer.