CHAPTER 8 Inherited Home Sales & Taxes
Selling an inherited home involves navigating specific tax rules and understanding their implications. From capital gains to estate and inheritance taxes, this chapter will help clarify the tax responsibilities and benefits associated with selling an inherited property.
Common Questoins About Taxes on Inherited Property
Many people are unsure about the tax implications of selling an inherited home. Some believe the proceeds are entirely tax- exempt, while others think they’ll owe capital gains tax on the sale amount exceeding the original purchase price. Additionally, many wonder whether the $250,000/$500,000 Home Sale Tax Exclusion applies to inherited property sales. Let’s explore these issues in detail.
Capital Gains and Inherited Properties
The IRS allows homeowners to exclude up to $250,000 of capital gains from income (or $500,000 for married couples filing jointly) when selling their primary residence. However, to qualify, the seller must have used the home as their primary residence for at least two of the last five years. This requirement often disqualifies inherited homes unless the inheritor moves into the property for two years before selling. However, the stepped-up basis rule benefits inheritors.
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