Inheriting a home can be a very difficult experience. Not only are you mourning the loss of a loved one, but you may have many memories and emotions tied to the home. For various reasons, not everyone that inherits a house wants to keep it. Some common scenarios where the heir/beneficiary may want to sell include:
- House is in poor condition and needs too much work
- The heir(s) are settled into a home they love and don’t have a reason to move into the inherited house
- The beneficiaries have many emotions tied to the house, which can be difficult to deal with
An important question to ask is “what are the tax consequences when selling a house I inherited in St. Louis Missouri?”
Tax Consequences when selling a house I inherited in St. Louis, Missouri
Taxation of gains/losses
Capital gains or losses refer to what you earn from selling property that you use for either personal or investment purposes. Capital gains and losses can be from houses, furniture, and many more things. If you decide to sell an inherited home in St. Louis, that sale is regarded as capital gain or loss for the purpose of income tax. In most cases, for you to qualify for the lower rates of long-term capital gains, you are required to have held that property for at least a year. When dealing with an inherited home, however, any gain or loss may be be treated as long-term.
Calculation of basis
In order to understand how you’ll be taxed having inherited a home, you need to know how basis is calculated. There are two different values to consider here:
- Cost Basis — In general, and to keep it simple, cost basis refers to how much you paid for the house when you bought it.
- Basis — This is what the house is worth.
For traditional transactions, not involving an inherited property, cost basis often comes into play, but when the subject property was inherited, the process is a bit different. Cost Basis is not used for a home that you received as an inheritance or gift. Instead, the basis of the inherited property is typically its fair market value at the time the owner (decedent) passed away. This lessens the burden on heirs and allows them to pay less tax. It’s considered a bit of a tax loophole. As an example, let’s say you inherited a property that is worth $250,000 at the time of the owners death, but you sell it for $275,000. $250,000 would be the basis and is subtracted from the $275,000 (along with any other costs of selling, such as real estate agent commissions), leaving a capital gains (taxable profit) of $25,000. I don’t know about you, but I would much rather be taxed on $25,000 than $275,000.
Most property that is titled in the name of a deceased owner must go through probate. There is, however, an exception made for real estate that may enable heirs/beneficiaries to avoid the probate regarding the real estate. An affidavit of heirship, sometimes referred to as deed by heirs, or deed of heirship, can keep real estate out of the probate courts and simplify the process.
What To Do With An Inherited House
Having an inherited home can be stressful given the fact that you have new property to maintain along with taxes, insurance, etc; All while mourning a loved one and going through the probate process. Going through the probate process in St. Louis will typically be the first step to selling the inherited home, though as mentioned above, an affidavit of heirship may be used as an alternative in the state of Missouri. When going through probate, the court authorizes the sale and dictates how you may proceed. 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.
By selling to professional real estate investors you can quickly be relieved of any burden with the property. Selling to an investor is typically the easiest route and you can even leave behind any unwanted items. Contact us for inquiries on how to go about things when selling your home in St. Louis and we will be glad to help you. We are local here in St. Louis Missouri and are able to provide assistance for all kinds of real estate related transactions. If you’ve inherited a house and are thinking about selling, give us a call. We will treat you with kindness throughout the process and respect that you may not even be ready to sell yet, if ever. We offer free, no obligation consultations and are more than happy to come talk about your situation, whether you decide to sell or not.
* Please note that I am not a tax professional attorney and this should not be considered legal advise.