The tax consequences when selling a house inherited in Wichita can be hard to understand and untangle much of the time.
At first look, applicable laws may be thought of as straightforward, but they can be more complex once all the legal requirements and nuances are taken into consideration. In short, once you made gains, you need to pay taxes, and if it’s a loss, you get a deduction on taxes.
However, it gets complicated because even if you get a profit or had a loss also depends on when the decedent died and how you use the house.
What Are the Tax Consequences When Selling a House Inherited in Wichita?
Capital Gains or Losses Taxes
The tax implications when selling a home you inherit in Wichita come with being subject to capital gains taxes. Capital gains or losses are those that result from the sale of stuff you utilize for personal or investment reasons, including stocks or a home. So for income tax purposes, the sale of a home you inherit in Wichita is considered to be a capital gain or loss.
The risk with selling a home you inherit is that a gain or loss is perceived as a long-term gain or loss. More so, losses on personal property cannot be declared as a tax deduction. So in case you have to make use of the home you inherit as your own house, it turned into your personal property, and loss cannot be subtracted once it’s sold.
Reporting the Inherited House
In many instances, the executor has to submit an estate tax return to report the inherited house. However, this is only in case the estate went over the inflation-adjusted exemption amount.
The decision of the gain or loss on the home being sold is determined on the “basis” of the house. As the basis goes up, the taxable gain from a sale goes down. There are, of course, distinct rules for the sale of an inherited home that permits a special stepped-up basis.
“Basis” Determination
The basis of the home is mostly dependent on the date it was given as an inheritance. Usually, the basis would be the fair market value on the date of the decedent’s death. Meaning, the capital gains taxes you owe are based on gains more than the property value during the time of the decedent’s death – not what was paid by the decedent for the house.
If you have not lived in the house and in case it got sold for a price lower than what the fair market value was at the time of death, then you get a deductible loss. Keep in mind that only $3,000 of such losses can be deducted every year against your ordinary income. Any amount more than $3,000 will have to be rolled over as deductions in the following years.
Reporting Sale of the Inherited House
Apparently, when an inherited home is sold, the sale needs to be reported (and gains or losses) during the filing of your income tax return. In computing the gain or loss, you must deduct the basis from what you received when the house was sold.
For reporting of the gain or loss, a standard document must be used for the purpose of the IRS Schedule D. Gain or also must also be included in your personal Form 1040 tax return. Be sure you use Form 1040 (and not the Form 1040A or Form 1040EZ) for the year in which the inheritance house was sold.
The tax effects, if you sell a house you inherit in Wichita, can be complicated and hard to comprehend at best. Usually, it’s a wise decision to look for an expert to assist you to move around the tax waters.