house is sold, the gain or loss for tax purposes is determined by subtracting its basis on the date of sale from the sales price. The larger the basis, the smaller the profit is, reducing tax liability. However, a home’s tax basis is defined differently when someone inherits a home. Cost is not the starting basis for a home received as an inheritance. The basis of property you inherit is the property’s Fair Market Value (FMV) at the time the owner died. When you inherit property, such as a house or stocks, the property is usually worth more than the prior owner’s basis. If you were to sell the property, there could be huge capital gains taxes. Fortunately, when you inherit property, the property’s tax basis is stepped-up, which means the basis would be the current value of the property. The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death—your basis is “stepped up.” For instance, if you inherit a house that was purchased several years ago for $100,000 and it is now worth $300,000, you will receive a step-up from the original cost basis from $100,000 to $300,000. If you sell the property right away, you will not owe any capital gains taxes. If you hold on to the property and sell it for $450,000 in a few years, you will owe capital gains on $150,000 which is the difference between the sale value and the stepped-up basis.
OTHER TAX
Heirs may have to pay property taxes as soon as they inherit real estate, and they will continue to pay them for as long as they own the house.
Many states cap how much the assessed property value can rise
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