If you recently inherited a home, you might be wondering about the tax repercussions of owning, keeping, or selling that property. Taxes on inherited properties work a little differently from those on your primary home or residence, and they can be a little tricky to understand when you’re first getting started. Here’s our quick guide to inherited property taxes.
Tax Implications of Inherited Properties
Luckily, there is no federal inheritance tax, which means you won’t pay taxes on a property simply for inheriting it. (Some states do have an inheritance tax, but North Carolina is not one of those states). There are, however, some taxes you’ll have to pay should you decide to sell the property.
Capital gains tax
Typically, when a home is sold, you’ll pay a capital gains tax on the difference in value between the sale price of the home and the price you initially purchased it for. On a residence you’ve lived in for two of the past five years, you’ll be able to exclude a portion of this profit ($250,000, or $500,000 for married couples) from being taxed. However, if you haven’t lived in the home, as is often the case with inherited properties, you won’t qualify for this exclusion.
When you sell an inherited property, you'll pay a capital gains tax on the profit. However, if you inherited a property that belonged to the previous owner for a long time (read: will sell for a lot more than it was purchased for), you won’t actually pay a capital gains tax on that entire gain. Instead, the property is assigned a Fair Market Value at the time of inheritance. You will only pay a tax on the difference between that FMV and the price you eventually sell the home for.
Other Financial Considerations
In addition to taxes, there are a few other financial aspects of inheriting property. This might include the mortgage, the condition of the property, and whether there are multiple heirs. Here are some things to think about.
Is there a current mortgage?
If there is a mortgage on the home, you’ll want to know whether you can simply assume the mortgage, or if you’ll have to pay it off upon inheritance. This is often the case with unconventional mortgages like reverse mortgages.
Is the property in good condition?
If the house has been under the same ownership for a while or it hasn’t been maintained well, it might be in need of a few repairs or updates, particularly if you plan to sell. Depending on the size of the repairs needed, it might be best to sell as-is.
Are there other heirs?
It’s common for multiple siblings or family members to inherit a property together. This can present a challenge, particular for those with varied needs and ideas of what should be done with the property. Some may want to keep or move into the home, while others would prefer to sell the property.
Searching for a Triangle Agent Experienced with Selling Estates?
Are you looking for an agent in the Triangle suburbs who can help you sell an inherited property? We'd love to help! Contact Ann Milton Realty today to learn more about how we can help you understand the tax implications of selling an estate—then list it for sale without all the headaches.