In most states, sales tax is paid at closing of the sale. If you are asking about Capital Gains tax, you should check with an attorney or a CPA.
I am not your attorney and am not giving legal advice.
Unfortunately the answer to your question is that you must consult with competent local counsel with experience in trusts and estates and probate law as well as federal estate tax law. The reason for this is that whether or not you (and possibly your two brothers) will have any taxable gain on sale of the house will depend on whether or not the house was treated as part of your late father's estate notwithstanding that he gifted the house to you before he died.
The reason this issue matters (and it may not be the only issue here) is that if the gift of the house to you was a so-called "gift in contemplation of death" - usually gifts made within a certain period of time prior to the donor's death - then the house would have been included in your father's estate for federal estate tax purposes and you would have received the house with a cost basis equal to the then fair market value on the date of your father's death. If this is the case, then you will likely have little or no taxable gain on the sale of the house.
On the other hand, if the gift of the house was done in a way that prevents the house from being included in your father's estate, then you would have a carryover basis in the house - basically, you would have the same cost basis that your father had on the date of the gift - and since your father's cost basis was probably a lot less than fair market value, under this scenario you could end up incurring substantial taxable gain on the sale of the house.
Depending on the size of your father's estate this issue could also have implications for your father's estate's tax liabilities if the house was not included in the taxable estate.
Finally, and quite apart from the estate issues, if you have been living in the house and using it as your principal residence, then you should also consult with competent local tax counsel to determine if you would qualify to exclude gain on the sale (up to $250,000) as gain on the sale of your principal residence. If you would otherwise qualify for that exclusion it would make a lot more sense for you to wait for another 1/2 a year until you meet the requirement that you have used the house as your principal residence for 2 out of the last 5 years. That way, regardless of whether you acquired the house from your father with a carryover basis or a stepped-up FMV basis, at least $250,000 of any gain would not be taxable in any event.
My answer does not constitute legal advice and may not be relied upon by anyone for any purpose and does not constitute an attorney/client relationship or an offer to form such a relationship. This disclaimer is intended to be fully compliant with the requirements of Treasury Department Circular 230 and the terms thereof are fully incorporated by reference. If you wish to consult with me please contact me at [email protected] or visit my website at www.newyorktaxcounsel.com
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