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When beneficiaries inherit real estate, decide to sell the property and keep the money, must they all pay capital gains tax?

San Diego, CA |

Our elderly mother is the sole owner of a condo in New Jersey. If/when this property is inherited by her four adult children, and the beneficiaries decide to sell the condo and keep the money, are they all liable to pay capital gains tax after the sale?

Attorney Answers 3


  1. The short answer to that question is yes. However, if you receive the real estate as a result of it passing to you and your siblings at death you get the benefit of a "step up" in tax cost basis. This means that if you sell the property after her death (for example) for 250,000 and it was worth 210,000 at the moment of her death (date of death value), the capital gain would be $40,000. The proceeds would be split and the taxable capital gain would be split in the same proportions (I assume 25% each or $10,000). This is better than the option some families mistakenly fall into which is to have mom gift the real estate to you by deed prior to her death in which case the capital gain would likely be much greater (if she paid $100,000 for it year ago and it was sold after her death, as above, for $250,000 the capital gain wold be $150,000 split 4 ways).

    Also, depending on her residency and the size of her estate, she may also have NJ estate tax issues. You may want to have her visit with an estate planning attorney where she resides to review these issues. I also am usually concerned with long-term care issues for the elderly and she should also have this issue reviewed.

    This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/


  2. By "inherited" I presume you mean that it will pass as a bequest of her estate. If so, there is a "stepped-up" basis to the fair market value at the date of death. Presuming that the sale is at the FMV, then there would not be any gain. If your mother does not have a Will and Estate plan, she should definitely see a lawyer.

    I hope this helps!

    Ron Cappuccio
    www.SaveYourEstate.com
    856 665-2121

    If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.


  3. Yes they are liable for whatever tax might be due. However, given IRC Section 1014, which "steps up" the basis in the property to the date of death fair market value, there is likely to be no tax due.