TAXES AFTER AN INREHITED TRUST SALE

As a successor trustee who inherits a house, the taxes you may be responsible for depend on several factors, including the value of the property, the estate’s overall worth, and local tax laws. Here’s a breakdown of the potential taxes:

1. Estate Taxes

• Federal Estate Tax: The federal estate tax only applies to estates that exceed a certain threshold (around $12.92 million in 2023). If the estate is valued below this, no federal estate tax is due.

• State Estate Tax: Some states have their own estate taxes with lower thresholds than the federal level. You should check if the state where the property is located imposes an estate tax.

2. Inheritance Tax

• State Inheritance Tax: Unlike estate tax, which is paid by the estate, inheritance tax is paid by the individual receiving the inheritance. Only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) currently impose inheritance tax. Rates and exemptions vary based on your relationship to the deceased and the state’s laws. Spouses and sometimes children may be exempt or taxed at a lower rate.

3. Capital Gains Tax

• Stepped-Up Basis: When you inherit a house, its cost basis is typically “stepped up” to its fair market value at the time of the original owner’s death. This means if you later sell the house, you’ll only pay capital gains tax on the increase in value from that stepped-up basis to the selling price, rather than the difference from the original purchase price.

• If you sell the house for the same or less than its stepped-up value, no capital gains tax is due. If it appreciates further before you sell, you’ll owe capital gains tax on the additional increase.

4. Property Taxes

• As the new owner, you are responsible for ongoing property taxes. Some states allow reassessments of property taxes when ownership changes, which could cause the taxes to increase.

5. Income Tax

• In most cases, inheritances are not subject to income tax. However, if the property generates income (e.g., rental income), that income would be subject to income tax.

6. Trust-Related Taxes

• If the property is held in a trust and income is generated from it (like rental income), the trust may owe income tax, or the beneficiary (you) may owe tax on distributions, depending on how the trust is structured.

Consulting a tax advisor or estate attorney is recommended to fully understand the tax implications

Contact Brent Blay for more! 

909-641-8751

Brentblay@parkregency.com