Accepted Answer

Hello whitedoug,

There are actually no federal "inheritance" taxes. Instead, the IRS imposes an estate tax on estates which exceed a certain value. For 2009 that value is $3.5 million. The state of IL follows those same guidelines. So if your mother's entire estate was worth less than this, then no estate taxes are due.

When you sell property that you received through an inheritance, you are automatically entitled to a stepped up basis in the property, which is equal to the fair market value of the property on the day you inherited it. That portion of your inheritance is not taxable. However, if you later sell the property for a higher amount, then you would owe capital gains tax on any gain you had from the sale.

As an example, if the home was worth $200,000 on the day you inherited it and then you later sell it for $225,000, you would owe tax on the $25,000 gain. The gain will be reported in the year of the sale and it is reported on Schedule D as a long term capital gain. Those gains are subject to a maximum tax rate of 15%. You would also owe state taxes on the gain to the state where the property is located, and those rates vary by state.

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Thank you whitedoug.

Expert:	Merlo
Pos. Feedback:	99.8 %
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Answered:	9/15/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad