Do You Need to Pay Capital Gains Tax on Inherited Property If Sold?

by Brian Huber Google

    Selling property you own can trigger capital gains tax, even if you inherited it. You typically need to know your original cost of the property in order to calculate a capital gain. Because you didn’t spend anything for inherited property, a different amount called a “basis” is used. Selling something for more than basis is taxable. If you sell for less than the basis, you only report a deductible loss for some types of property.

    Your basis for inherited property is usually the property's value on the date of death for the person who bequeathed it to you. However, if the personal representative of the estate chose to use an alternative valuation date, your basis is the property value on that date. The value for property, such as stocks or mutual funds, is the market price. For other types of property, the value is listed on the federal estate tax return or state inheritance tax schedule.

    An inherited asset you sell for more than the basis is taxed as a capital gain, including investments and personal property. Taxable gains occur from selling stocks and bonds, as well as collections like stamps and coins. Even household furnishings are subject to capital gains tax. Selling business property that you depreciated for tax purposes after inheritance triggers ordinary income tax, along with capital gains tax.

    Selling inherited real estate for more than the basis is taxed as a capital gain unless either of two exceptions applies. First, if you rented out the property, any depreciation you claimed is taxed as ordinary income. Secondly, if you used the property as your main home for two of the preceding five years, you can exclude up to $250,000, or $500,000 if married filing jointly.

    Don’t report the loss from selling any personal property, such as household goods or an automobile. Losses on these types of property are not deductible against gains from selling other property. You also don’t deduct the loss for selling a house, unless you rented it. No deduction is granted for a loss from selling a house used as your personal residence.

    About the Author

    Brian Huber has been a writer since 1981, primarily composing literature for businesses that convey information to customers, shareholders and lenders. Huber has written about various financial, accounting and tax matters and his published articles have appeared on various websites. He has a Bachelor of Arts in economics from the University of Texas at Austin.

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