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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55328
Experience:  29 years of experience as a tax, real estate, and business attorney.
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how will be taxed by the irs and the state of mn if I take

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how will be taxed by the irs and the state of mn if I take possession of my deceased fathers (paid for) house.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Can you tell me the value of the estate overall and the cost of the house? And, when did your dad die? Thanks.
Customer: replied 4 years ago.

overall estate...350,000 house 145,500 decedent died 04/07/2013.

Thanks for following up. You will have no tax impact. Minnesota has no inheritance tax. And, the estate has no tax because it is under the Federal exemption amount of $5,250,000 and under the Minnesota exemption amount of $1,000,000. Your basis in the house will be increased ("stepped up") to its fair market value as of the date of death; so, if you decide to sell it there will be no gain on the sale unless it later appreciates after death. And, because there is no gain, there would be no tax due on the sale either.

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Customer: replied 4 years ago.

how will this effect my personal tax return, will it be considered capital gains, and will the estate tax return be completely separate from mine?

It will not impact your personal tax return at all. This is an inheritance to you and thus is not income to you. Thus, you have no reporting or tax obligations relating to this inheritance. Only when you sell the property would you report the sale on your income tax, but even then, there would only be gain if you sell if for more than it's worth as of the date of your dad's death. Given that you are beneath the exemption level for estate taxes, you need not file an estate tax return.
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