exclusion from income of up to $500,000 of gain.
To qualify for the exclusion, the home must have been used as the primary residence for two years out of the prior five years before the sale. This does not apply to an inherited property, unless it becomes your primary residence for at least two years out of the next five years. However, the stepped-up basis rules in inherited property may help your tax situation in selling an inherited home. 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. So, if you inherit property and later sell it, you pay capital gains tax based only on the increased value of the property since the date of death—your basis is “stepped up.” For instance, your parents may have bought their current home for $100,000. If you inherit that home at the time of their death and it appraised for $300,000 (this is the "stepped up" basis), and you sell the property right away, you will not owe any capital gains taxes. But, 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.
60
Powered by FlippingBook