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Inherited Property and Your Possible Tax Concerns
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Inherited Property and Your Possible Tax Concerns

This morning, Lisa Cahill, who is our CFO and is a licensed CPA, received an email from a fellow real estate agent here in Florida with a tax question... her answer to this question, and to similar other questions she gets from agents and property owners, show the complexity of inherited properties and the tax implications of subsequent transactions.  Take a look:

Hi Lisa

As you are a CPA & a Realtor I was hoping I can ask you a question?

I have an out of state seller, who inherited a Florida property years ago and is looking to sell it, It is not a primary residence, it's my understanding any tax liabilities were addressed back then and the IRS gave a cost basis to the property of $800K.

If the seller were to sell the property for less than $800K today would there be any Federal or State tax due? I would think not, however wanted to seek your advice.

If in the same example should the property hypothetically sell for $900K how might that impact things?

Thanks much for any light you can shed, it's most appreciated :-)

Regards,

John

 

Here is how Lisa replied:

Hi John,

 

Generally, without looking at the Estate tax return or the property owner's tax situation or the deed and based on the information that you have given in this e-mail, I would say that if the IRS established a cost basis, this is what would be used in the calculation of capital gain.  Whatever the property sells for, less the costs of the sale which would be commissions and title work and less the basis that the IRS established and less any improvements to the property that was paid for after the property was inherited would be the capital gain or loss.  Different rules apply for a 2nd home type of property as opposed to an investment type of property.  I do not know this person's tax situation or if the property was rented at all during this period.  If the property was rented, then depreciation allowed and allowable must be taken into account also.  I do not know if this property owner has any capital losses going forward to offset any current gains and I also do not know the tax bracket of this seller to know if the gains would be phased out at all due to income level.  Also, if the property owner is out of state, the states other than Florida have all sorts of different tax implications. 

 

I could go on and on about the different tax implications that could arise in a transaction such as this, but my best advice is for the property owner to contact his tax professional and get an estimate of gain or loss to be realized and recognized on this particular transaction. 

 

I hope this was of some help.  Do not hesitate to contact me with any other questions that you may have.
 
Lisa
 
The most telling part of this for Lisa was just how important it is for real estate agents to refer a seller in this situation to their tax professional, who can dig deeper into their particular tax situation and render a full and valuable opinion, because of the cause and effect situations that exist in a tax return, and the related chain reactions and implications from prior years filings.
 
 

 

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Last updated on Apr 27, 2017: 12:55 PM.

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