Capital gain on house inherited

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sil2017
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Capital gain on house inherited

Post by sil2017 »

Quote
However, the existing estate tax code also has a feature called “step up in basis at death” that reduces tax liabilities. When a person passes on an asset that increased in value since it was bought, that asset is not subject to the normal capital gains tax that would otherwise be paid if that asset were sold instead of bequeathed. Instead, “basis step-up” is applied and the asset is passed on at the market value at the time of death. When heirs eventually sell the inherited assets, they only pay capital gains tax on the difference between the value when inherited and the sale price. Thus, it is possible to avoid paying capital gains tax on asset appreciation during a person’s lifetime.
Last edited by sil2017 on Sun May 29, 2022 12:41 pm, edited 5 times in total.
cwied
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Re: Does anyone pay capital gain when house is inherited?

Post by cwied »

Inheriting a house does not trigger capital gains tax. Selling the house does. As you correctly said, you will get the stepped up cost basis, so unless the house sells for above that, you won't have to pay any capital gains tax.

Ref: https://www.nolo.com/legal-encyclopedia ... usion.html
fabdog
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Re: Does anyone pay capital gain when house is inherited?

Post by fabdog »

In the scenario you described, (purchased for $100K, worth $1 million at death, heir sells the next month for $1 million) there is no capital gains tax.

As you noted, the basis receives a step up at death (under current rules) and therefore only the amount of net sale (after commissions and other fees) above the $1 million stepped up basis would be exposed to capital gains taxes for the heir(s).

In the event it takes a year and after commissions etc, they net $1,050,000 the cap gains on $50K. And long term, as it's inherited.

Mike
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celia
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Re: Does anyone pay capital gain when house is inherited?

Post by celia »

Assuming the house and the beneficiary are in the U.S. (or the beneficiary was a US citizen living anywhere), there would be no capital gains if the house was sold within a few months after death (unless you can determine that the value increased during those few months).

If the beneficiary or house are in Canada, please add "(Canada)" to the thread title in your original post. When you are signed in, click on the pencil icon at the top of the post.

The US Estate Tax Exemption changed to $11.2M as of 2018.
Greenman72
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Re: Does anyone pay capital gain when house is inherited?

Post by Greenman72 »

Being from the US, and living in a state with no income tax, I can’t opine on the Canadian tax system.

However, in the US, I would say “no capital gains tax”. The house is stepped up in basis, and the estate tax exclusion is actually ~$11.4m.
Topic Author
sil2017
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Re: CANADA) Does anyone pay capital gain when house is inherited?

Post by sil2017 »

Will this apply to a Permanent US resident or just US citizen?
Gill
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Re: CANADA) Does anyone pay capital gain when house is inherited?

Post by Gill »

Deleted
Last edited by Gill on Sat Apr 20, 2019 1:55 pm, edited 2 times in total.
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Gill
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Re: Canada/Permanent US Resident- Does anyone pay capital gain when house is inherited?

Post by Gill »

sil2017 wrote: Sat Apr 20, 2019 1:37 pm He thinks someone , whether beneficiary or deceased (tax return filed on year of death) needs to pay capital gain. I think not as it is part of the estate tax exemption.
I think the fact that this is Canadian real estate is being ignored in the replies. I'm no expert in this area, but as I understand it, Canada treats death as a sale and taxes the unrealized gain at death. This gives the estate a stepped up basis but income tax is due on the gain. That's the price that is paid in Canada for no estate tax and which has been proposed from time to time in the US.
Gill
Last edited by Gill on Sat Apr 20, 2019 1:56 pm, edited 1 time in total.
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Topic Author
sil2017
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Re: Canada/Permanent US Resident- Does anyone pay capital gain when house is inherited?

Post by sil2017 »

I understand
Last edited by sil2017 on Sun May 29, 2022 12:43 pm, edited 2 times in total.
Gill
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Re: Canada/Permanent US Resident- Does anyone pay capital gain when house is inherited?

Post by Gill »

sil2017 wrote: Sat Apr 20, 2019 1:56 pm
Gill wrote: Sat Apr 20, 2019 1:54 pm
sil2017 wrote: Sat Apr 20, 2019 1:37 pm He thinks someone , whether beneficiary or deceased (tax return filed on year of death) needs to pay capital gain. I think not as it is part of the estate tax exemption.
I think the fact that this is Canadian real estate is being ignored in the replies. I'm no expert in this area, but as I understand it, Canada treats death as a sale and taxes the unrealized gain at death. This gives the estate a stepped up basis but income tax is due on the gain.
Gill
This is not Canadian real estate. House is in California
Oh, OK. You threw me off with the mention of Canada Revenue. In that case there is no income tax due by anyone. You are correct and he is wrong. He is talking about Canadian law, not US law.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Topic Author
sil2017
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Re: Canada/Permanent US Resident- Does anyone pay capital gain when house is inherited?

Post by sil2017 »

delete
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