Have a Tax Question? Ask a Tax Expert
You will be liable for tax on any gain you had from the sale of this property.
When you receive property through an inheritance, you automatically receive a stepped up basis in that property, meaning your basis is the fair market value of that property on the day you inherit it. You may then also add to that basis the cost of any improvements you made prior to the sale. That is then your adjusted basis.
To figure your gain you would take the selling price less your adjusted basis, less the cost of any selling expenses such as real estate commissions. If that results in a gain, then the gain is taxable as a long term capital gain at a maximum rate of 15%. If you did not have a gain from the sale, then no taxes will be due.
Thank you Customer
You said the property was appraised at $450,000 at the time of the inheritance.
Was that before or after you made repairs to the property?
If it was before you made repairs, how much did you spend on repairs to fix up the property?
When you say you paid expenses and debts, were these expenses related to the property or just expenses and other debts that your mother left behind to be paid?
Hello again Customer,
The debts that you had to pay off such as taxes, insurance and funeral costs have no affect on figuring any gain you had from the sale of this home.
If the home was appraised at $450,000 at the time of your mother's passing, then $450,000 would be your starting basis. If you then made repairs such as new roofs, plumbing repairs, etc., you would add the cost of those repairs to that basis. So as an example, if the repairs that you made cost you a total of $25,000, then your basis actually becomes $475,000. If you then sell the house for only $470,000, you actually had a loss of $5,000 and so you will owe no tax.
Using another example -- if the repairs only cost you $10,000, your basis now becomes $460,000. If you sell the home for $470,000, you have a reportable gain of $10,000 which is split equally between the siblings. If there are 4 of you, then each of you would report a gain of $2,500 and your maximum tax at 15% would be $375.
From the extent of the repairs that you say you have made, I would say it is very likely you spent at least $20,000 or more on those repairs. So if that is the case, that will bring your basis up to more than the selling price, and you will owe no taxes on the sale of this property.