What Are the Tax Consequences When Selling a House Inherited in Los Angeles?

Aug 5, 2020 | Probate

The tax consequences when selling a house inherited in Los Angeles can be hard to understand and untangle much of the time.

The relevant laws may seem fairly simple at first glance, but they get complicated when you factor in all the legal conditions and nuances. The short version is that if you made gains, you’ll owe taxes, and if you had a loss, you may have a tax deduction.

But then it gets complicated because whether you made a profit or had a loss also depends on when the decedent died and the use you made of the house.

What Are the Tax Consequences When Selling a House Inherited in Los Angeles?

Capital Gains or Losses Taxes

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

The catch with selling an inherited house is that a gain or loss is considered a long-term gain or loss. Further, losses on personal property cannot be claimed as a tax deduction. So if you ever used the inherited house as your personal home, it became personal property, and you can’t deduct a loss if 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 is only if the estate exceeds the inflation-adjusted exemption amount.

The determination of the gain or loss on a house sale depends on the “basis” of the house. As the basis goes higher, the taxable gain from a sale decreases. There are, however, different rules for the sale of an inherited house that allow for a special stepped-up basis.

“Basis” Determination

The basis of the house depends largely on when it was inherited. In general, the basis is the fair market value on the date of the decedent’s death. What this means is that the capital gains taxes you owe are based on gains above the property value at the time of the decedent’s death – not what the decedent paid for the house.

If you never lived in the house and if it sells for less than what the fair market value was at the time of death, then you have a deductible loss. Just be aware that only $3,000 of such losses can be deducted each year against your ordinary income. Anything above that $3,000 will have to 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 the gain or loss, you have to subtract the basis from what you received for the sale.

To report the gain or loss, you need to use the standard document for this purpose, the IRS Schedule D. You also have to include the gain or loss on your personal Form 1040 tax return. And make sure you use the Form 1040 (and not the Form 1040A or Form 1040EZ) for the year in which you sold the inherited house.

The tax consequences when selling a house inherited in Los Angeles can be complex and difficult to understand at best.It’s usually a good idea to find a professional to help you navigate the tax waters.

We’re ready to help you reach your real estate goals and will be glad to answer any and all questions. Contact us by phone at (310) 928-9688 or fill out the online form.

Let Us Give You a Cash Offer on Your California House!

Fill Out Our Online Form

First things first, reach out to us. When you visit our website, make sure to fill out our short online form and include all the essential details, such as your name, address, and contact information. Alternatively, you can also call us at (310) 928-9688 to learn more about our services and share your information with us. From there, we’ll handle everything else and get the process going.

Get Your Cash Offer

Once we’ve received your request for a cash offer, we’ll get back to you and schedule a convenient time to inspect your house. We’ll do a thorough walkthrough to gauge the condition of your house and provide you with a fair and competitive price. Keep in mind that this is not a showing. You don’t need to decorate, clean up, or repair your home before our visit. We are more than happy to buy your property in whatever condition it may be, good or bad. .

Why Wait? Get Paid Now

If you’re happy with our offer, we can set up a closing date at your next available time and you will receive your payment then. It’s as simple as that!

"*" indicates required fields

This field is for validation purposes and should be left unchanged.