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Ask Merlo Your Own Question

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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3 siblings and myself inherited property valued at 65 k was

Customer Question

3 siblings and myself inherited property valued at 65 k was renevated and sold at 127 k we got 114 k after closing we have not pd the contractor which around 30 k how do we go about pying contractor and what can we we expect to py out in estate taxes for the state of nebraska
Submitted: 5 years ago.
Category: Tax
Expert:  NYCLAWYER replied 5 years ago.
What specifically do you want to know?
Customer: replied 5 years ago.
What other info do you need to answer my question
Expert:  NYCLAWYER replied 5 years ago.
The contractor has to be paid independent of your taxes and stake. How much each pays is a matter of your negotiation, but presumably equal shares. Contractor may agree to a payment plan or wait until you have the money but that is a matter of negotiation. If that is not your question, let me know and I will comment on what you need to know.
Customer: replied 5 years ago.
i understand contractor has to be paid seperate,on how much of the monies do we pay taxes on.and can i pay contractor out of estate monies before i pay i deduct the 30k off the top of the estate.
Expert:  NYCLAWYER replied 5 years ago.
You would need to pay taxes on the full amount regardless of contractor payment.
Customer: replied 5 years ago.
do you know how much the taxes would be percentage.
Expert:  NYCLAWYER replied 5 years ago.
That would be a tax issue which an accountant can answer. If you want I can transfer the question to our tax section, but ask that you accept my answer so I am paid for my answers.
Customer: replied 5 years ago.
my attorney said to save all the receipts so i can deduct off the estate,now i'm confused with your answer.
Expert:  NYCLAWYER replied 5 years ago.
I am going to send you to our tax section for the tax related question.
Expert:  Merlo replied 5 years ago.

Hello debra,


Your question has been referred to the Tax forum to be addressed.


First, I assume that since it was you and your siblings that inherited this property, that it was property left to you by your parents. If that is the case, the state of NE allows you to exempt the first $40,000 from inheritance taxes.


The NE inheritance tax is based on the valuation of the property on the day the decedent passed away. So at that time if the property was worth $65,000, that is the valuation you used. Assuming the property was left to you by your parents, the first $40,000 is exempt from NE inheritance tax, leaving $25,000 which is taxable at a rate of 1%. So the total you will owe for NE inheritance tax is $250.


The issue of what you spent for renovations is a separate issue. The IRS does not impose an inheritance tax. However, you do have to pay capital gains tax if you sell a property which you inherited and have a gain from the sale.


When you inherited the property, you were entitled to a stepped up basis, meaning that your basis became whatever the value was of that property on the day you inherited it. So in this case your starting basis was $65,000. Now if you made $30,000 in improvements to renovate the home, that amount is added to your basis, giving you an adjusted basis of $95,000 in the property. If after selling expenses you received $114,000 for the property, then you had a gain of $19,000. This gain is treated as a long term capital gain and subject to a maximum tax rate of 15%.


You and your siblings would each report your share of this gain on Schedule D of your tax return.


The contractor's bill can be paid out of the sale proceeds or however you wish to pay him. But the tax you actually owe is based on the gain you had from the sale as detailed above.


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


Thank you debra



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