<p>I am selling my parents house (that is in our name after their passing), because we got an unexpected offer that we couldn’t refuse. My dh & I are currently renting, but will be relocated after the first of the year and plan to build or buy. So my ? is, how will the sell of the house affect us with taxes? I know if you sell and reinvest, you don’t have the capital gains, but what if we aren’t going to be able reinvest in the same year? Thanks for any info!</p>
<p>Capital gains can be offset somewhat by any improvements made to the house. For example, if a new addition was made to the house, the gains would be reduced by the cost of the addition. Repairs are not included. For example, at our house, we made renovations and repairs recently. Repairing the stucco does not count, but I think my replacement windows do.</p>
<p>This may or may not affect you - if so, close in 2012:</p>
<p><a href=“Get Ready for the New Investment Tax - WSJ”>Get Ready for the New Investment Tax - WSJ;
<p>Your tax knowledge is out of date, but you’re going to like the new information better!</p>
<p>You will have virtually no capital gain on the house you inherited. You owe tax on any capital gain, which is defined as the positive difference between the price that you sell it for (minus costs associated with selling, such as commission and seller incentives) and the “basis,” which is the price that was paid for the house (plus the value of any improvements, such as a deck you might have added). BUT, when you inherit real estate, you get a “stepped-up basis,” meaning that your basis isn’t the original purchase price of the house, but rather the market value of the house on the day you inherited it. If you sell it within a few months of inheriting, then the difference between your selling price and your basis is usually basically zero.</p>
<p>And you no longer have to reinvest in order to avoid paying capital gains tax on a house that you live in. If you have owned and occupied a house for 24 of the 60 months immediately preceding the sale, then the first $250,000 of capital gain ($500,000 for a married couple filing jointly) is shielded from taxation. So when you and your husband sell the house that you’ve been living in, as long as you have lived in it for two of the past five years, you probably won’t owe any tax whether you buy a new house or not. You will owe some tax if you make more than $500,000 profit on the sale of the house, but you know, if you have a windfall that big, I’ll be happy for you, but I also won’t mind if you have some tax liability!</p>
<p>P.S. I don’t think the increase in long-term capital gains tax (missypie’s WSJ article) will be an issue for the sale of this house, since you won’t have had the house for a long period of time, and since you receive a stepped-up basis for computing your gain. But I should disclose that I am not an accountant or a tax guy. I am just a guy with an Internet connection.</p>
<p>The information you need is mostly in here: <a href=“http://www.irs.gov/pub/irs-pdf/p523.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p523.pdf</a>.</p>
<p>I was going to say what Sikorsky just said so I second that post. The real key is the stepped-up cost basis which means you’re really looking at any gains that might have happened SINCE you inherited the house and if that was only within the last few years there’s a very good chance the house hasn’t appreciated since the time you inherited it. No appreciation = no gain = no capital gains taxes.</p>
<p>Thank you so much for the info! I knew the smart people here would have a fast answer! Good to know!</p>
<p>Make sure you read the source material from the IRS yourself though or seek counsel of a tax professional to make sure you understand your particular situation.</p>
<p>^ Most definately…just getting some advice from others right now.</p>
<p>You may need an appraisal or some form of proof - like real estate ads for comparable house actual sales - from the date when you inherited the property. You can’t just claim a step up in basis and get away with it with no proof if they question your tax return. I’d clip some sales data and keep that in my records.</p>
<p>^^ Yes - you need evidence of the value at the time of inheritance - i.e. comps or an appraised value.</p>