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I'll be contacting an accountant this week, but I also wanted some advice from anyone here who's gone through something similiar:
My mother passed away in March. My brothers and I totally rehabbed her house (I supplied around 20k) for this to be done.
We are closing next month. I am worried that since I'll be getting a bigger cut of the pie (since I willl be getting my 20 k back), I'll be hit financially at tax time.
I don't expect to get more than 60k (including the 20k that was owed to me).
I know I don't get hit with an "inheritance" tax, but isn't this still "income" when doing my taxes? Any suggestions?
if you inherited a house as long as its under the allowable max by your state and federal you inherit it at todays value. if you sell it for more you will pay taxes, if you keep it there is no tax. if you sell it for less then there is no tax.
You will be taxed on any gains from the value of the house the day she died to what it sold for, minus any improvements you put into the house. There is no such thing as "inheritance tax" on the federal level. It is an estate tax paid out of the value of the estate by the estate. Hopefully you got an appraisal on the house before you started doing the work.
No, did not have it appraised. It sold for 180k. If we have to pay taxes, fine, but I don't want to pay the burden of it since I contritubeted the most money and financial sacrifice for fixing it up.
you need to have an appraisel to establish a cost basis . as golfgal said you may not have estate taxes due on a federal level but your state may have an inheritance tax.
We didn't have it appraised initially, but the buyer's mortgage company sent out an appraiser and it's been done. Do I need a copy of that, even though we offically sold it?
No, did not have it appraised. It sold for 180k. If we have to pay taxes, fine, but I don't want to pay the burden of it since I contritubeted the most money and financial sacrifice for fixing it up.
You don't have to pay the tax, the tax should be paid out of the proceeds of the house and then the excess divided after you get your $20,000 back. You really need to consult an estate planning attorney to figure out how to price the house when she died. That is the number you REALLY need to know. Hopefully there are similar houses in similar condition to this house before you fixed it up that they can use as comps. Did you take before and after photos, I hope?
once you own the money from the sale any taxes due on the estate follows the money. while its true the money comes out of the house proceeds if you already divided up the money and taxes are due anyone who doesnt pay their share or spent it will have the rest of you paying their share out of your proceeds.
Taxes are payable only on the capital gains, the same as if the parents had sold the house themselves when they were still alive. If they bought the house for $100K and put $50K into modernizing it, and it sold for $220K, there would be capital gains tax applicable to that $70K difference between what they put into is and what they took out of it.
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