I inherited my parents' home in November 2005 and it has
remained unoccupied since that time. I am now considering selling the house, but
am unclear about what capital gains taxes I will owe. The home's market value
was approximately $170,000 when my parents passed away and now its market value
is near $182,000. What capital gains will I be expected to pay and what is it
based on? Would I be better off selling and financing part of the mortgage myself?
Does that defer capital gains taxes if I don't collect all the cash from the sale
of the home at one time?
The basis for determining gain or loss on inherited property
is the property's fair market value on the date of the decedent's death. Fair
market value is the price that property would sell for on the open market. It
is the price that would be agreed upon between a willing buyer and a willing seller,
with neither being required to act, and both having reasonable knowledge of the
Your basis in the property then would be the
$170,000 value at your parent's death. If you sell the property for $182,000 and
have no selling expenses, your gain is $12,000. Inherited property is always considered
to have a long-term holding period, so you would qualify for the preferential tax
rate of 15 percent. Your maximum tax then would be $1,800; it could be lower if
you have no or little income.
It's important to remember that
the value at date of death is not reduced by the cost of selling expenses of the
inherited property. If you were to pay the customary 6 percent real estate commission,
or $10,920, your gain on the property would be reduced by the full commission,
leaving you $1,080 in gain which would translate into $162 in tax.