amount, varying year by year, can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes: $5.6 million for individuals and $11.2 million for married couples. The annual gift exclusion amount is $15,000 for 2018—up from $14,000 where it’s been since 2013. • Inheritance Tax: Heirs pay federal inheritance tax on the net worth of their inheritance. The net worth is the gross value less certain deductions, a mortgage that must be paid off on an inherited house, for instance, or a marital deduction for property inherited by a spouse. If the result is more than the IRS exempt amount for a given year, the heir must pay an inheritance tax at the federal income-tax rate for the non-exempt amount. • Property Tax: Heirs may have to pay property taxes as soon as they inherit real estate and will pay them for as long as they own the house. Many states cap how much the assessed property value can rise from year to year, but when someone buys or inherits real estate, it will be reassessed at current market value. Even if subsequent assessments are capped, the initial reassessment can result in heirs paying thousands of dollars more in taxes than the previous owner. Some states offer an exemption; California state law, for instance, says that if the heir is the spouse or child of the owner, there is no reassessment. • Capital Gains Tax: Capital Gains taxes are applicable when you decide to sell your inherited home for the fair market value or more. This means that you will have to pay taxes on your profits from the sale of the property. This is assessed based on how much you sell the property for and what the value of the property was when you inherited it. Generally, you will not be required to pay any capital gains tax if you sell the property immediately after inheriting it, since the property value will not have had time to increase. • Reporting the Inheritance: It is necessary for the executor of the estate to report the inherited property by filing an estate tax return. The “cost basis” (which we will talk about more later in the book) of an inherited home is decided based on when you inherited the property. In most cases, the basis for an inherited home is the market value of the property on the date when the deceased person died.
13
Powered by FlippingBook