Skip to main content

How do I figure what my taxes will be on inherited land that I am going to sell?

Sugar Land, TX |

Since I didn't actually purchase the land I can't figure it as capital gains, how do I estimate how much tax I will pay on inherited land that I sell? I'm thinking the land will sell for around $144,000.

+ Read More

Attorney answers 4

Posted

Assuming this isn't a primary residence, for which there are exemptions: The tax cost basis of inherited property is the decedent's date of death value (there are caveats to this for inherited property from many years ago). To establish what the date of death value is you will have to go back to see how the estate was handled and if there was a value put on the property either in an accounting or tax return...in any event if you have no reasonable basis for that cost basis you will need an appraisal to value the property as of the decedent's date of death.

Once you have established that date of death value, you can then calculate your capital gain, which would be the difference between the sale price (you estimate it at $144,000) and the date of death value. The entire gain would be divided by the number of sellers. I would advise reviewing this with an attorney and/or CPA.

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/

Posted

Depending on when the death occurred and the size of the estate, generally speaking your basis in the property is the value at the date of death of the person from whom you inherited it. Your gain is then measured by the sale price less the basis. If that is a postive numbe you likely owe tax.

Hope this helps. If you think this post was helpful, please check the asnwer was a good answer tab below. Thanks. Mr. Geffen is licensed to practice law throughout the state of Texas with an office in Dallas. He is authorized to handle IRS matters throughout the United States and is licensed to practice in US Tax Court as well as The Court of Claims. This answer is provided as a public service and as a general response to a general question, it is not meant, and should not be relied upon as specific legal advice, nor does it create an attorney-client relationship.

Asker

Posted

If the tax records look like this: (+) Improvement Homesite Value: + $0 (+) Improvement Non-Homesite Value: + $0 (+) Land Homesite Value: + $0 (+) Land Non-Homesite Value: + $1,010 Ag / Timber Use Value (+) Agricultural Market Valuation: + $160,080 $1,690 (+) Timber Market Valuation: + $0 $0 -------------------------- (=) Market Value: = $161,090 (–) Ag or Timber Use Value Reduction: – $158,390 -------------------------- (=) Appraised Value: = $2,700 (–) HS Cap: – $0 -------------------------- (=) Assessed Value: = $2,700 I would go by the market value correct, not the assessed value?

Arthur Harold Geffen

Arthur Harold Geffen

Posted

Based solely upon what you have written above, I would use the Market Value, but be prepared for an argument.

Posted

As explained in the previous two responses, when you inherit property, you receive a "step-up" tax basis. That is to say that your basis in the property that you inherit is the fair market value of the property at the date of death of the previous owner. In your question, you did not say when you inherited the property. If it was many years ago, you may have to do some digging. Prior to 2001, the federal estate tax exemption was only $600,000, so if you inherited the property prior to 2000, it is possible that a federal estate tax return (IRS Form 706) was filed; if that is the case, the property would have been appraised to determine the fair market value to report on the return. Similarly, if Texas has an estate tax, you could probably use the value of the property used on the Texas estate tax return. If you have only recently inherited the property, then you're in luck: as it is highly unlikely that the property would have appreciated significantly in just a year or two, your tax basis will likely be equal to the contract selling price. And if you use a broker to facilitate the sale, you may even end up with a long-term capital loss! A final point: any gains/losses from the sale of inherited property are treated as long-term capital gains/losses, even if the property is sold less than one year after it was inherited.

You should consult your financial adviser or CPA before selling this property. There could be some other issues that you have completely overlooked that could have a major impact on your tax liability.

Good luck!

LEGAL DISCLAIMER Ms. Willi is licensed to practice law in the state of OH and she maintains an office in Franklin County. Ms. Willi is an OSBA board certified specialist in estate planning, trust and probate law. She is admitted to practice before the U.S. Tax Court, and she is authorized to handle IRS matters throughout the United States . Her phone number is 614-890-0500 and her website is www.willilaw.com. Ms. Willi is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. This response is a form of legal education and is intended only to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Ms. Willi strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Posted

Find out if an Inventory was filed in the estate. If Texas estate, inventory requires the property to be listed at its fair market value.