Capital Gains Tax Depends On Market Value

Added November 7, 2005 by Ilyce R. Glink

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Summary: When you sell property that's an inheritance how much capital gains tax do you owe? It depends on the market value of the home when you inherited it and how long you own the home after the inheritance occurs. A typical capital gains tax rate is 15 percent. You may also want to consult with a real estate attorney to determine the cost basis and capital gains tax.

Q: My mother lives in South Carolina, and she just inherited the home in Georgia that my grandmother lived in before she died.

My mother is planning to sell the house to my cousin. What can she expect to pay in the way of capital gains taxes? Is there a standard percentage?

A: My condolences on your mother's loss.

When you inherit real estate, you inherit it at its current market value. If you sell it on the day you inherit it, for its current market value, you would owe nothing in terms of capital gains because you wouldn't have made a profit on the sale.

For example, let's say the house your mother inherited is worth $200,000. If she turns around and sells it to her cousin for $200,000, there are no capital gains, so no tax is owed.

If the house was worth $200,000 but she owns it for one year and then sells it to her cousin for $300,000, she would typically owe 15 percent on the $100,000 in profits, or $15,000. If she owns the property, she would have $285,000 in cash after closing on the sale to her cousin. If she sold it before having owned it for one year, she would pay tax at a much higher rate because it would be considered ordinary income.

For more details, please consult with a real estate attorney.

Nov. 9, 2005.

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