Will My Loved Ones Pay Capital Gains on An Inherited Piece of Property?


When you inherit property like stocks or a house, the property is typically worth more at that point in time than it was when the original owner bought it. If you were to sell the property, this could lead to substantial capital gains taxes, which could mean that your loved ones are responsible for thousands of dollars in the tax bill.

Capital gains refers to the difference between the selling price of the property and the basis of the property. The basis is typically also the purchase price of the property. The basis could be adjusted, however, in the event that you or the owner spent substantial money on capital improvements. It’s a good starting point to assume that 15% capital gains tax will apply at the federal level. This could also include any state taxes.

When you inherit real estate, if the tax basis of property is stepped up, the value is then readjusted to the current market value, which could eliminate or significantly reduce any capital gains tax that would be owed by the person who received and then sold the property. You’ll want to discuss with any of your real estate professionals and financial professionals other considerations to keep in mind whenever you pass on property. Unintended consequences could leave your loved ones with a failure to plan or to maximize the value of the overall asset.

If you need assistance in determining the full scope of your estate plan, working with a Pasadena area lawyer is an excellent next step. Our lawyers can help you chart your personal goals alongside current estate tax strategies.

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