How Is Capital Gains Tax Paid On Inherited Property?

As the recipient of an inheritance, you're responsible for paying taxes on those assets. However, the term "inheritance tax" can be confusing. People may use the term in reference to a broad range of taxes, including a potential capital gains tax on inherited property. Some states also tax the value of assets you receive as an inheritance.. By the time they pass, the house has increased in value to $200,000. You inherit the house and sell it for $225,000. With a stepped-up basis, you would only have to pay capital gains taxes on the $25,000 gains. Without the stepped-up basis, you would have to pay capital gains taxes on the full $125,000 gains. Convert to primary residence

When you inherit property, the IRS applies a stepped-up basis to that asset. Here's how capital gains are taxed on inherited property.. See an estate tax expert if this is an option for you. Capital Gains Tax. A high tax basis is good. That's because when someone sells an inherited asset, long-term capital gains tax will be due on the difference between the sales price and the tax basis. The higher the basis, the smaller the difference between it and the sales price.