TBO.com - TBO is Tampa Bay Online

Is Tax Due On Inherited House Sale?

ADVERTISEMENT

By ILYCE GLINK Tribune Media Services

The Tampa Tribune

Published: August 21, 2008

My father recently died, and my siblings and I sold his house and split the profits according to his will. What would be the best way to keep from paying taxes on this gain? It's about $14,000. If I put it in a Roth IRA or regular IRA, would that shield me from the tax burden? Please give me some advice so it's not so devastating at tax time.

Here's some good news: It's likely that you don't owe any taxes on that inheritance.

When you inherit property, you inherit the property at its value at the time the person died. Generally, if you sell it within a year of the owner's death, the IRS views the property's value as of the day of death as the same as the day it sells.

To recap, if your father purchased his home 10 years ago for $50,000 and recently died, and you and your siblings sold the home for $200,000, then you and your siblings would not have to pay any taxes on the sale of the home.

But, let's say you kept the property for five years after his death, and then sold it for $100,000 more than the value on the date of death. In that case, you would typically owe 15 percent in capital gains taxes plus state tax, and there could be additional taxes owed on the sale if the property was used as an investment property.

Finally, if there is tax to be paid when you sell real estate, you can't avoid it by putting the proceeds into an IRA or other retirement account.

For details, consult with your accountant or tax preparer.

We bought an investment property in California and used a 1031 exchange company. Today we found out that the company is closed. We would like to know what we should do now.

I'm so sorry. There have been a number of recent cases where the owners of 1031 exchange companies have either used investors' money for personal use, absconded with it or invested it poorly and lost it.

You should contact the California Department of Real Estate and the California Attorney General's office and let them know you are an injured party. Also, learn what they're doing about the company.

Then contact a lawyer in California. That lawyer may advise you to sue the 1031 company.

Move quickly because, under the IRS rules, if you don't complete your exchange within the required timeline, even if the company has not released the money, you will owe taxes. To avoid that double-whammy, you need to see what you can do to protect your money.

Consult your tax adviser.

Write to Ilyce Glink at Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or e-mail thinkglink@aol.com.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT