Inheriting a home can be a bitter sweet experience… You could be left with great property value you can use to improve your life, but you are mourning the loss of a loved one. But if your inherited house is not one you wanted (either because you don’t want the management responsibility or the financial burden), you may be considering selling it . At that point, you may tend to ask yourself “what are the tax consequences when selling a house I inherited in Miami, Florida?” Well, the tax laws have been designed in a way they will not add any more burden unto you upon inheriting the property. This implies that the financial consequences are less daunting than what you would expect, which is good news for you.
Tax Consequences when selling an inherited house in Miami, Florida
Calculation of basis
In order to comprehend how you’ll be taxed when selling an inherited a home, you need to know how basis is calculated. Basis, in this case, refers to the asset cost for purpose of the calculation of capital gains along other taxes. When a person passes away, the value or basis of their property in Miami is increased to the market value as at the time of their death. This is called a stepped-up basis. For instance, if a person purchased a home 20 years ago for $25,000, but it was worth $100,000 at the time of their death, that property would be valued at the latter amount for the purpose of calculating capital gains.
A step-up in basis is a big tax advantage, because it reduces the capital gains taxes due upon sale of the inherited home. The higher the tax basis, the lower capital gains upon the sale of that property.
For example, Frank purchased a house in 1990 for $100,000 and died in 2015. His daughter, Mary, inherited the house. To determine the basis that Mary now has in the house, she needs to have the house appraised by a local, qualified appraiser. The appraiser determines that the house is worth $400,000 as of Frank’s date of death (Mary should keep a copy of the appraisal with her valuable papers). When Mary sells the house the following year for $450,000, she will only be taxed on the $50,000 gain in value, not on $350,000 (the difference between the $100,000 her father paid for the house in 1990, and $450,000 she sold it for in 2016).
Taxation of gains/losses
Capital gains or losses refer to what you earn from selling property that you use for either personal or investment purposes. Such can be houses, furniture and many more things. If you decide to sell an inherited home in Miami, that sale is regarded as capital gain or loss for the purpose of income tax. In most cases, for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. However long the duration you have been in ownership of an inherited home, any gain or loss will still be treated as long-term.
State Estate, Inheritance & Federal Estate Tax
Residents in Florida who inherit a home do not need to worry about a state estate or inheritance tax, but they do need to consider federal estate tax. That tax, however, falls on the estate of the person who died, not on the people who inherit that property. There is, however, an exemption of $5 million, so if someone passes away in Florida with less than the exemption amount, their estate doesn’t owe any federal estate tax, and there is no Florida inheritance tax. The heirs and beneficiaries inherit the property free of tax. They don’t pay income tax on it, either, because inherited property is not ordinary income.
Reporting the sale
Upon selling an inherited home, you have to report it for the income tax purposes. You should first calculate your capital gain or loss. This is done by subtracting the basis from the sale amount. You should then report that amount to the necessary authorities.
Selling your inherited home
Having an inherited home can be blessing, but it can also be stressful given the fact that you have new property to take care of and pay taxes for it at the same time. As the first step to selling your home, you should go through the probate process in Miami . The court will then authorize you to proceed as you wish. If there are any other individuals involved in the inheritance, you should first agree with each other on that decision. You can then file a petition requesting the court to allow you to sell the property.
Last, you can call M&N Investment Properties LLC now at (786) 471-6647 to undertake a smooth and legitimate sale of your home. We are local here in Miami Florida and we know the market here better than anyone else. If you still have questions about selling a house you inherited Miami, then we would be happy to set up a free consultation to discuss it with you in more detail.
Selling an inherited house can relieve you of a financial burden. Selling the property to professional home buyer like M&N Investment Properties is a basic simple and fast process. Contact us for inquiries about the process when selling your home in Miami and we will be glad to help you.
*Note: This article is not intended as legal advice. You should always consult with a local inheritance law attorney to discuss your legal options.