For many, inheriting a home can be a walking paradox to experience: overnight, you are left with property of sizable value you can use to improve your life while still also processing and mourning the loss of a loved one. For those who are pondering the next best move to make in this situation, understanding the tax consequences when selling an inherited property can absolutely inform your ultimate decision on how to handle the property itself. Thankfully, tax laws have been designed in such a way not add additional burden upon the person inheriting the property. Typically, the financial consequences are less daunting than what you would expect, which is good news for you.
Tax Consequences when selling a house I inherited in New Hampshire, NH
Calculation of basis
To figure out the tax consequences of selling an inherited home, you first need to understand the concept of “basis.” No, this isn’t a life-coaching buzzword; in tax-speak, your “basis” is the value used to calculate capital gains or losses when you sell the property.
Here’s the silver lining: when someone passes away, the basis of their property gets a “step-up” to its market value at the time of their death. Imagine your great-uncle bought his home in New Hampshire 30 years ago for $25,000, and now it’s worth $300,000. For tax purposes, your basis is that $300,000, not the $25,000 he originally paid. This means you’ll only owe taxes on the profit above $300,000 if you sell it. Uncle Bob might not have fixed the leaky roof, but he sure left you with a favorable tax situation.
Taxation of gains/losses
When you sell an inherited home, the IRS treats the transaction as a capital gain or loss. The calculation is straightforward: subtract your stepped-up basis from the sale price. If the house sells for $320,000 and your basis is $300,000, you have a $20,000 capital gain. Simple, right?
Here’s the twist: inherited property is always considered long-term for tax purposes, no matter how quickly you sell it. So, even if you’re speed-running the home-selling process, you’ll benefit from the lower long-term capital gains tax rates—currently topping out at 20% for most taxpayers.
Reporting the sale
Once you’ve sold the house, the IRS wants to hear about it. To report the sale, you’ll calculate your capital gain or loss and include it on your tax return. This involves subtracting your basis from the sale price and filling out the appropriate forms—likely Schedule D and Form 8949. It’s not glamorous, but it’s necessary.
What About Probate?
Before you sell, the property will need to go through probate, a legal process that ensures the deceased’s assets are distributed according to their will (or state law if there isn’t one). This can take time, but it’s a crucial step. If multiple heirs are involved, make sure everyone is on the same page about selling the property.
Taxes: What You’ll Owe (or Won’t)
Once the house is sold, you’ll owe taxes on the capital gains, if any. The stepped-up basis means you’ll likely have a smaller gain (or even a loss) than you’d expect. Pro tip: if you’re unsure about your tax obligations, consult a tax professional. They’ll help you navigate the fine print and might even make you laugh at the absurdity of it all.
Final Thoughts: You’ve Got This
Having an inherited home can be stressing given the fact that you have new property to take care of and pay taxes for it at the same time… You should go through the probate process in New Hampshire as the first step to selling your home. 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.
You should then consider how much tax you are to pay. This will be paid against the capital gains or losses resulting from the sale of the house. You can call Susan Cole Realty Group now at (603) 443-3149 to undertake a smooth sale of your home. We are local here in New Hampshire NH and we know the market here better than anyone else.
Selling an inherited house can relieve you of quite a burden. In addition to that, selling the property to an investor is a basic simple and fast process. Contact us for inquiries on how to go about things when selling your home in New Hampshire and we will be glad to help you.