What Are the Tax Consequences When Selling a House Inherited in Philadelphia?

Tax Consequences When Selling a House Inherited in Philadelphia

What Are the Tax Consequences When Selling a House Inherited in Philadelphia_The tax consequences when selling a house inherited in Philadelphia can be hard to understand and untangle much of the time.

The relevant tax laws may seem pretty simple at first glance, but they get complicated when you factor in all the legal conditions and nuances. The short version is that if you made gains, you’d owe taxes; if you had a loss, you might have a tax deduction.

But then it gets complicated because whether you made a profit or lost also depends on when the decedent died and your use of the house (rental property or primary residence.) This blog post discusses the tax consequences a property seller may experience when selling an inherited home. 

What Are the Tax Consequences When Selling an Inherited House in Philadelphia?

Capital Gains or Losses Taxes

The tax consequences when selling an inherited house in Philadelphia include being subject to capital gains taxes. Capital gains or losses stemming from the sale of items you use for personal or investment purposes, such as stocks or a house. So for income tax purposes, the sale of an inherited home in Pennsylvania is treated as a capital gain or loss.

The catch with selling an inherited house is that a gain or loss is considered a long-term gain or loss. Further, losses on personal property cannot be claimed as a real estate tax deduction. So, if you ever used the inherited house as your home, it became personal property, and you can’t deduct a loss if you sell it.

Reporting the Inherited House

Sometimes, the executor has to file an estate tax return to report the inherited house. But this is only if the estate exceeds the inflation-adjusted exemption amount.

The determination of the gain or loss on a house sale depends on the “basis” of the house; as the basis increases, the taxable income from a sale decreases. There are, however, different rules for the sale of an inherited house that allow for an exceptional stepped-up basis.

“Basis” Determination

The basis of the house depends largely on when it was inherited. Generally, the basis is the fair market value on the date of the decedent’s death. This means that the capital gains taxes you owe are based on gains above the property value at the time of the decedent’s death – not what the decedent paid for the house.

If you never lived in the house and if it sells for less than the fair market value at the time of death, you have a deductible loss. Remember that only $3,000 of such losses can be deducted yearly against your ordinary income. Anything above that $3,000 will have to be carried over as deductions in future years.

Reporting Sale of the Inherited House

When you sell an inherited house, you must report the sale (and gains or losses) when you file your income tax return. To calculate the profit or loss, you have to subtract the basis from what you received for sale.

To report the gain or loss, you must use the standard document for this purpose, the IRS Schedule D. You must also include the profit or loss on your personal Form 1040 tax return. And make sure you use Form 1040 (not Form 1040A or Form 1040EZ) for the year you sold the inherited house.

The tax consequences when selling a house inherited in Philadelphia can be complex and challenging to understand. Finding a professional to help you navigate the tax waters is usually a good idea. It’s essential to complete any tax document correctly to avoid any issues, and most tax professionals request a reasonable hourly rate; at the end of the day, the expense is well worth eliminating the obstacles and stress of filing your tax statement!

  • If you’re interested in receiving a no-obligation highest cash offer on inherited property, don’t hesitate to contact our family-owned property. Buying Property 215 purchases property in any condition regardless of the situation. No repairs or renovations are necessary; we conduct no inspections, walkthroughs, or showings! We can close within 14 days or multiple months. The Better Business Bureau accredits our small business with an A+ rating and 5-star Google reviews

We’re ready to help you reach your real estate goals and will be glad to answer any questions. Contact us by phone at [215-359-6090] or complete the online form.

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