How much are capital gains taxes on inherited house?


A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. The higher market value of the asset at the time of inheritance is considered for tax purposes. ... The asset receives a step-up in basis so that the beneficiary's capital gains tax is minimized.


Attorney Tom Olsen: Linda, you're on News 96.5.

Linda: Hi. Thanks for taking my call. I acquired a home from a friend who passed away. She had two mortgages on the home, which I continued to pay, but I did not refinance them into my name. Then it's been about six months and I sold the house.

Attorney Tom Olsen: Good.

Linda: The mortgages were paid off at closing.

Attorney Tom Olsen: All right. Linda, let me anticipate your question. You're wondering how much capital gains taxes are due. Linda, your basis for capital gains tax purposes was the value of the property at the date of death. If that moment in time, the property's worth $200,000 and you sold it six months later for $200,000, you owe absolutely no capital gains taxes. Good news for you, Linda.

Linda: Well, it was appraised at 125 and then I sold it for 125.

Attorney Tom Olsen: Well, that's not going to change my answer. Just same thing, but 125,000, Linda.

Linda: Okay, it doesn't matter?

Attorney Tom Olsen: No. Check it with your accountant or CPA. What we're talking about, folks, is a good provision left in the internal revenue code. That good provision in internal revenue code is called the step-up basis, that when somebody passes away and somebody inherits an asset, whether it's a home or stock in Microsoft or the painting hanging on the living room wall, your basis is the value at the date of death. It's a great tool for avoiding capital gains taxes on assets.

Chrissy, occasionally will get somebody that bought a piece of property back in the good old days for 100,000 bucks. Now it's worth a million dollars and they might talk in terms of, "Well, Tom. I might sell that." I say, "Look, if you can manage to hold onto it and pass it on to your kids when you pass away, their basis will jump from 100,000 to a million dollars. You're going to save yourself and your kids a whole lot of capital gains taxes. If you can manage to do that, that'd be a great idea." Now, we're talking about rental investment properties. Something completely different when you talk about selling the home that you live in.

Hey, folks. My name is Tom Olsen and the name of the show is Olsen On Law. We're going to take a break. We'll be back in just a few minutes.