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I have inherited a property in California that is currently…

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I have inherited a...

I have inherited a property in California that is currently in escrow. How will I be taxed for the money I make on the sale of the property?

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Submitted: 9 months ago.Category: Tax
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9/25/2017
Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 9 months ago
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,529
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Welcome to JustAnswer. Hello my name is***** ® professional and I will be able to assist you today.

To be able to answer your question would you please tell me how you inherited the property. For example was the property passed to you via a will that was probated in state court?

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,441
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986.

Bear with me just a moment and I’ll provide my initial response and then we can go from there if you have further questions on this.

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Customer reply replied 9 months ago
it was passed to me from my father in his will and it is part of probate in CA
Customer reply replied 9 months ago
i can't talk on the phone right now
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

Regardless of the way it was inherited, you will receive a step - up in basis to the Fair Market Value as of the date of death
...

This means that if it's sold fairly quickly, there will be NO taxable gain on sale ... and because selling costs can be added to your basis, you may actually have a small tax loss

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Customer reply replied 9 months ago
I am being asked to file a form 593-C with the escrow company and I am not sure which box to check
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

You'll check box 3.

...

This also requires that you file form 593-E when you file your taxes, but it is not required now. YOu can't actually file the 593-C or E until you file your CA state taxes.

...

The escrow company just wants this as a certification so that they do not have to withhold from the proceeds of the sale.

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Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 9 months ago

I am able to complete the answer from here. No need for your continued follow ups on the discussion I started.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

You could have inherited in ANY fashion; transfer on death deed, intestate succession (probate), through will (probate), through trust, etc.

...

Conveyance TO you is irrelevant, as long as it was generated through inheritance.

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In ALL of these the tax treatment is the same.

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Your tax basis is stepped up to the Fair Market Value as of the date of death.

...

Capital Gain = Sales Price - Basis

...

Hence, the only way you'll have a gain is if you hold the property long enough that the sales price rises to a point where even after the selling costs (which are ADDED to basis, which, again, is re-set to the property's value on the date of death) a gain occurs.

...

IRS and CA FTB will expect a property sold within a year or so NOT to show a gain.

...

Give he escrow company the 593-C with box three checked.

...

Then come tax time, you'll file both the 593-C AND the 593-E to show your breakeven, or more typically small loss, on the sale.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars or faces on your screen, and then clicking “submit" – You may need to scroll up to see the stars.

...

(Your rating will go to the last expert to post)

...

But if you need more on this, please let me know.

Lane

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

P.S. The California Assoc of Realtors projects that, after posting a nominal increase in prices for 2016, see a slight increase of .08% for 2017.

...

Given this, if your real estate costs were 7%, or even 3%, you would not be expected to have a gain, even if you were holding for two or more years.

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Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 9 months ago

"Conveyance TO you is irrelevant, as long as it was generated through inheritance." - Unless the property was inherited through a gift or a generational skipping trust.

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