On the outside looking in, the inheritance of a property seems to be something like a gift.
When you actually take a step back and look at the situation, an inheritance can be anything but a gift.
Emotions are high due to the passing of a loved one
Anxiety is approaching due to the uncertainty of the outcome of the property
Your worn out from the abundance of time you put in to finally get to the point of selling the property (probate, family meetings, funerals, agents, investors, attorneys and such)
The topic of inherited properties in Syracuse NY is not fully understood and can definitely be a bit confusing.
This is not a scenario that someone experiences often but will most likely be an area that you have to go through at one point in your life.
So if you have inherited a property from a loved one, you should understand the complete process and what it entails.
One of the steps of this process is the sale of the property. When you go to sell your inherited property there are certain guidelines and requirements that differ from the sale of your primary residence.
Do I Report The Sale Of My Inherited Property in Syracuse NY?
The sale of an inherited property will differ from the sale of your primary residence due to the fact that you did not live in this property for a certain amount of time.
When you go to sell your primary residence and you have lived in this home for more than 2 years you will not be forced to pay tax on the profit of the sale if you did not realize a gain of over $250,000 for single homeowners and over $500,000 for married couples.
When it comes to selling your inherited property, you will be required to report the sale even if you do not have to pay taxes on the sale.
Make sure that you stay organized and keep accurate information on the sale of your inherited property in Syracuse to avoid tax problems.
So now that we understand that you will be required to report the sale of your inherited property to the IRS, let’s find out if you will have to pay taxes on the sale and how the process works.
We are not licensed accountants & as stated these situations can become complicated so please consult a professional tax adviser for more information on this topic.
1) Determining the Stepped Up Basis
When determining the basis of the inherited property, we are simply referring to the fair market value of the property at the time of the decedent’s death. This will be the starting point for determining if you will be required to pay tax on the sale of the property.
So the value of the property that the decedent purchased the home is no longer applicable.
Let's go over a quick example.
The decedent purchased their property back in 1970 for $30,000. In 2016, at the time of their death the property is now worth $130,000 & you plan on selling for $130,000.
At first glance, it looks like you may need to pay tax on the profit of $100,000 but since we can take advantage of the "stepped up basis", our property is valued at $130,000 and we sell for $130,000, we will not have to pay any tax on the "gain".
2) Am I Required To Pay Taxes on the Sale?
The IRS does have certain guidelines that you have to follow in order to take advantage of the "stepped up basis".
You will need to sell the house within a year of the decedent’s death and are not allowed to make any improvements to the property.
The IRS will then allow you to claim the full market value of the property at the time of the decedent’s death.
So if you sell the property at or below the stepped up basis you will not realize a taxable gain.
However, if you sell the property for more than the stepped up basis, you will be required to pay tax on the income and will be treated as capital gains.
3) Adjusting the Basis
When it come's time to report the sale on your tax return. you may need to adjust the basis. This will ensure that you avoid under or overpaying any taxes by taking any improvements or additional costs into account.
If you decide to make major repairs, upgrading any appliances, replacing the roof or making any additional renovations that add value to the property, understand that you will need to adjust the "stepped up basis". Just as you will need to add these improvements to your basis, any costs that you incur from making these improvements will decrease the basis.
So before tax season comes around, make sure that you document all of the improvements and costs associated with the renovations you made.
4) Reporting the Sale
The IRS requires the sale of inherited properties to be reported regardless if you sell for a gain or loss.
You will report the sale of the inherited property on your Schedule D form 1040. Additional information will need to be provided on form S949.
This form will require the address of the property, date of inheritance, date of sale, the sales price and original or adjusted basis.
The sale of the inherited property in Syracuse NY will be considered a long-term capital gain regardless of how long you owned the property.
This information will be reported in part II of the Schedule D.
Wrapping it Up | Reporting the Sale of Inherited Property
Inheriting a property can become a very complicated process. However with that being said, if you understand the process from inheritance to sale, you will feel much more comfortable throughout each step.
Real estate and taxes can be complicated, but determining the tax basis of an inherited property is much easier than you think. By understanding this process, you will reap the benefits of the "stepped up basis" and actually avoid paying taxes on the sale.
If you are looking for a hassle free solution to selling your property, we would love to help. You can start the simple selling process below. We hope that post gave you some brief insight into reporting the sale of your inherited property.
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