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Merlo
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Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I inherited a house from my mother who recently passed away.

Resolved Question:

I inherited a house from my mother who recently passed away. Do I pay taxes on it? If I sell it am I taxed? If I keep it for two years, due to the economy, and use it as a rental will I be taxed on it when it is sold?
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
HelloCustomer

When you inherit property, you receive a stepped up basis in the property. What that means is that your new basis in the home is whatever the fair market value is of the home on the day you inherit it.

You would be taxed on any gain you have from the sale of the home, but your gain is figured by taking your selling price less your basis. If you sell the property shortly after the time you inherited it, then in all likrlihood you would have little or no gain from the sale, because your selling price should be close to your new basis.

If you keep the home for two years, you must use it as your primary residence in order to claim an exclusion of $250,000 from any gain. Using it as rental property would not qualify to take any exclusions on the sale.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you sher.

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and other Tax Specialists are ready to help you
Customer: replied 5 years ago.

I was under the impression that Oregon had no inheritance tax, does that apply here?

Does it make any differance with taxes if the house goes thru probate or not?

Expert:  Merlo replied 5 years ago.
Hello again sher,

There is no inheritance tax at the federal level or in Oregon.

You are not paying taxes on the value of the home that you received. That passes to you without any tax being owed.

The only time you owe tax is if the home increases in value after you inherit it, and then you would pay tax on the gain only.

In other words, as an example, if the house was worth $200,000 when you inherited it, then you do not pay tax on the value of that $200,000. If you sell the home a month later for $205,000, then you do pay tax on the gain you had of $5,000. That is not inheritance tax. You inherited the property without paying tax on it, but once the value increases and you sell it for a gain which is over the value of what you inherited, that is the only time tax becomes due.

It does not matter whether or not the home goes through probate. The same tax rules apply.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you sher.

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