Inheriting a house? Read this before you make any rash decisions
Inheriting a house? Read this before you make any rash decisions
Alessandra Malito Mon, May 23, 2022
There are tax implications to whatever decision you make.
Beneficiaries must juggle many considerations when they inherit a home, especially if they’re sharing that gift with siblings or others. There are tax implications whether they keep or sell the home, emotional attachments to the house and the items within the house, as well as other potential estate planning issues. In some cases, the property can become a source of rental income, whereas in other situations, it could be another source of cash after it’s sold — especially when the real-estate market is doing well.
Leaving behind a home for a loved one to inherit is a huge gift, but without the right planning, it could be an equally large headache.
Beneficiaries must juggle many considerations when they inherit a home, especially if they’re sharing that gift with siblings or others. There are tax implications whether they keep or sell the home, emotional attachments to the house and the items within the house, as well as other potential estate planning issues.
There is no right or wrong answer when choosing to keep or sell an inherited home. In some cases, the property can become a source of rental income, whereas in other situations, it could be another source of cash after it’s sold — especially when the real-estate market is doing well. But before jumping into the choice, here’s what to know:
The tax implications of selling the home
Individuals who sell a home after living in it for two out of the last five years enjoy the tax benefit of an exemption — for single filers, the exclusion is $250,000, while for those who are married filing jointly, it’s $500,000. This exemption is applied when a home is sold to reduce the capital gains the sellers would have to pay.
For example, if a married couple sold a home for $1 million and had a basis of $500,000, they would pay $0 in capital-gains tax for that sale. Comparatively, if they sold it for $1.5 million, they would reduce the tax obligation by $500,000, and pay capital gains tax on the remaining $500,000.
Surviving spouses who inherit the full value of their home after their husband or wife dies can still take advantage of the $500,000 exemption if they sell the house within two years of death, said Peter Palion, a financial adviser and founder of Master Plan Advisory.
To continue reading, please go to the original article here: