capital gains tax is due. However, if the property is later sold for $450,000, capital gains tax applies only to the $150,000 difference between the sale price and the stepped-up basis.
Property Taxes on Inherited Homes
Inheriting a home may also lead to increased property taxes. Many states reassess inherited real estate at its current market value, potentially resulting in higher annual property tax bills. Some states offer exemptions; for instance, in California, a reassessment may be avoided if the heir is the spouse or child of the deceased.
Estate and Inheritance Taxes
Estate and inheritance taxes may also apply, depending on the value of the inherited property and the state in which it is located: • Federal Estate Tax: The federal estate tax applies to estates exceeding $13.61 million for individuals and $27.22 million for married couples in 2024. Estates below these thresholds are exempt from federal estate tax. • State Estate and Inheritance Taxes: Some states impose estate taxes, while others levy inheritance taxes. Maryland, for example, has both. Washington State imposes an estate tax on estates valued over $2.193 million as of 2024. Eleven states—including Kentucky, Nebraska, and Pennsylvania—still collect inheritance taxes. An estate tax is calculated on the total estate value before distribution to heirs, while an inheritance tax is levied on the portion received by an individual. Understanding state-specific tax laws is crucial for determining potential tax liabilities when inheriting and selling real estate.
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