The deadline to file your 2021 taxes just passed on Monday. If you sold a Tulsa home last year, I hope you took advantage of some of the tax deductions available. Did you inherit a home? Do you plan on selling it soon? Find out how inherited house taxes are calculated when you sell it and how you might be able to reduce the amount of these taxes before you put it on the market.
Inherited House Taxes for the Home Seller
Capital Gains
When you sell your primary residence, the profit you receive is called “capital gains”. This is the difference between what you paid for it initially and what you received as the sale price. Uncle Sam takes his share as a capital gains tax. But when you inherit a Tulsa home, how do you calculate capital gains? Well, the IRS uses a “stepped-up” basis to determine capital gains. They use the value of the property at the time of the owner’s death as the baseline for the property’s value. Then, your capital gains is the difference between that value and what you (the heir) receive in the sale.
When you sell your primary Tulsa residence, the IRS allows you to claim a certain portion of your capital gains as tax-deductable. For single owners, it is the first $250,000 of profit. Married couples receive the first $500,000 of capital gains tax-free. However, inherited properties do not receive this same exclusion. Fortunately, you only pay inherited house taxes on the capital gains. For example, Great-Aunt Mary left you her property in her will. At the time of her death, it was worth $150,000. You sell it for $200,000. In turn, you only pay a capital gains tax on the $50,000 difference, not the entire $200,000. But, there are ways to lower your capital gains and, in turn, your capital gains tax.
Home Improvements and Their Effect on Capital Gains
Oftentimes, inherited homes tend to be older. Therefore, to make it marketable, you may need to make a few improvements before you list the home in order to maximize the amount you receive from the sale. Some of these improvements may be tax-deductible. And by “tax-deductible”, I mean that you can deduct them from your capital gains. Talk to your REALTOR® or tax person before starting any home improvement projects to determine which offer the most return on your investment, which you should keep to a minimum, and which to avoid altogether. And always keep your receipts!
Lori Cain, REALTOR®, Serving Midtown and the greater Tulsa, OK area. Call 918-852-5036.
