When you inherit a home, it can be a complex experience. Suddenly, you have a valuable asset that can enhance your life, but you are also grieving the loss of a loved one. If you’re unsure about your next steps, understanding the tax implications of selling an inherited property can help you decide how to proceed. Fortunately, tax laws are structured to minimize the financial impact on the person receiving the inheritance. In most cases, the tax consequences are less overwhelming than anticipated, which is positive news for you.
You Might Ask Yourself: Do I Understand the Taxes when selling a house I inherited in Massachusetts, MA?
Calculation of basis
In order to better understand how you’ll be taxed having inherited a home, you need to know how Basis is calculated. In this case, basis refers to the asset cost for purpose of the calculation of capital gains along with your other taxes. When a person dies, the value or basis of their property in Massachusetts is increased to the market value as at the time of their death. For instance, if a person purchased a home 20 years ago for $25,000 but it was worth $100,000 at the time of their death, that property would be valued at the latter amount for the purpose of calculating capital gains. The IRS determines what the property’s value at that time is by accepting what the sale price is if sold, hiring a formal appraisal performed by a licensed appraiser or having a broker in that state perform a comprehensive comparable analysis for the area the property is in.
Taxation of gains/losses
Capital gains or losses refer to what you earn from selling your property that is used for either personal or investment purposes, such as houses, furniture etc. If you decide to sell an inherited home in Massachusetts, that sale will be regarded as a capital gain or loss for the purposes of income taxes. In most cases, for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. However, in regards to an inherited home it doesn’t matter how long you have been in ownership, any gain or loss will still be treated as long-term. This is where what’s called “Step Up Basis” comes into play and why establishing a formal basis at the time of death is important. Step-Up in Basis means that since the market value on a property, that has likely appreciated substantially, resets according to the owners’ date of death, if that property is later sold on the open market the capital gains tax is now calculated according to the more recent, higher value. That is extremely important when planning what you could potentially net from the sale of the inherited property
| Initial Cost | Step-Up Basis | Capital Gains at Time of Sale |
| $100,000 | $250,000 | $150,000 – Transaction Fees |
Reporting the sale
Upon selling an inherited home, it is mandatory that you report it for the purposes of income tax which most of the time is performed by your closing attorney at the time of sale. Then you should calculate your capital gain or loss specific to the property. This is done by subtracting the step-up basis from the sale amount, minus any fees incurred when selling like attorneys, county recording fees, etc. You should then report the final amount to the necessary authorities.
Dealing with an inherited property can be overwhelming, especially when factoring in the new responsibilities of maintenance and taxes. The initial step towards selling your property is navigating the probate process in Massachusetts. This legal procedure grants you the authority to proceed with the sale or take complete ownership for future decisions. In cases where multiple heirs are involved, it is crucial to reach a unanimous decision, sometimes in the company of a mediator, before petitioning the court for permission or license to sell.
Understanding the tax implications of the sale is essential. Capital gains or losses from the property sale will determine the tax amount owed which could absolutely influence any decisions made by the heirs of an estate. Contact Gaeta Properties at (781) 258-6976 for expert guidance on facilitating a seamless and lawful sale of your property. As a local business in Massachusetts MA, our extensive knowledge of the area’s real estate market sets us apart. For detailed insights on the tax implications of selling an inherited property in Massachusetts, feel free to reach out to our team.
Selling an inherited house can take a massive weight off your shoulders. In addition to that, selling the property to an investor is a basic, simple and fast process. Contact us to see how to go about things when selling your home in Massachusetts and we will be happy to help you.