Tax Consequences┃Selling an Inherited House in Miami

The tax consequences when selling an inherited house in Miami can be hard to understand and figure out.

The relevant laws may seem fairly simple at first glance, but quickly become complicated when you start factoring in all the legal conditions and nuances. The short version comes down to whether or not you made gains. Gains equals taxes. A loss equals a tax deduction.

But it soon gets complicated again because whether you made a profit or a loss also depends on when the owner passed away died and how you used the property.

Before Selling Find Out What Your Tax Consequences Are!

What Are the Tax Consequences When Selling a House Inherited in Miami_
Capital Gains Taxes

The tax consequences when selling an inherited house in Miami are subject to capital gains taxes. Capital gains or losses stem from the sale of items that you use for personal or investment purposes, such as stocks or a house. Therefore, for income tax purposes, the sale of an inherited house is treated as either a capital gain or loss.

But, there’s another catch with selling an inherited property, being that a gain or loss is considered a long-term gain or loss.

Furthermore, losses on personal property CANNOT be claimed as a tax deduction. So, if you used the inherited house as your personal home at any point, you won’t be allowed to deduct a loss when you sell it.

Reporting the Inherited House

In some cases, the executor has to file an estate tax return to report the inherited house. But this will only happen if the estate exceeds the inflation-adjusted exemption amount.

Determining the gain or loss on a house sale depends on the “basis” of the house. The higher the basis, the lower the taxable gain from the sale.

What is the “basis”?

Basis… most frequently refers to the difference between the prices and the expenses involved in transactions when calculating taxes… it represents the costs associated with a product.

Investopedia.com

However, different rules regarding the sale of an inherited house exist that allow for a special stepped-up basis.

“Cost-Basis” Determination

The cost-basis of the house depends largely on when it was inherited.

With assets you inherit, the cost basis is usually equal to the fair market value (FMV) of the property or asset at the time of the decedent’s death or when the actual transfer of assets was made. This means that the capital gains taxes you owe are based on any gain higher than fair market value at the time the owner passed – not what the deceased paid for the house.

If you never lived in the property and it sells for less than fair market value when the owner passed, then you have a deductible loss.

You still should know that only $3,000 of such losses can be deducted each year against your ordinary income.

Any amount above $3,000 must be carried over as deductions in future years.

Reporting Sale of the Inherited House

Obviously, when you sell an inherited house, you have to report the sale (and gains or losses) when you file your income tax return. To calculate whether you made a gain or loss, you have to subtract the basis from the sale.

Reporting a gain or loss requires you to use the IRS Schedule D document. You also have to include the gain or loss on your Form 1040 Tax Return.

NOTE: You need to use the Form 1040 – not the Form 1040A or Form 1040EZ – for the year in which you sold the inherited house.

Even after explaining how it all works the tax consequences related to selling an inherited property can still be confusing and headache-inducing. That’s why we recommend finding a professional to help support you during this time.

Would you like to find out more and speak to someone based locally in Miami?
Then, call our office at (305) 916-3328. A member of our team would love to speak with you.
Or, click here to fill out our short form. We’ll get back to you as soon as possible!

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David Veras

David Veras was born in Hialeah, Florida and has been involved in Real Estate since February 2019.

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