Inherited property sold

Forum|Forum|4 years ago
June 3, 2021
2 replies
0 views

I inherited my mom's house and sold it for more than the fair market value at the date of death. Will I have to pay capital gains taxes on the sale if I invest the whole amount into a new property? This will not be my primary residence.

M-MTax

You have a gain and it's taxable. It doesn't matter what you do with the amount from the sale.....that's an old rule which no longer exists.

Opus 17

Employee

If you already sold the property, you owe the capital gains tax.

If this is investment property, you may be able to do a section 1031 "like kind exchange" which allows you to postpone paying gains tax on the sale. This must be set up in advance (which is why you can't take section 1031 if you already sold the property), and you may need the help of an accountant. And, this only postpones the tax. At some point, you will have to pay all the postponed capital gains tax (unless you die and leave the property to your heirs). Whether it is a good idea to postpone the gain will depend on what you think your present and future capital gains tax rates will be.

If this is personal property (a second home, you mom's old home, not used as a rental or for business) then you can't do a like-kind exchange and must pay the tax when you sell.

The provision @M-MTax referred to applied when you sold the home you lived in and bought a replacement home, and that was eliminated in 1997 I believe.

M-MTax

If this is investment property, you may be able to do a section 1031 "like kind exchange"

But it would be advisable to follow Revenue Procedure 2008-16 and that requires owning the relinquished property for 24 months before the 1031 exchange AND owning the replacement property for 24 months after the exchange among other requirements. That ownership period for the relinquished property might not be possible if the property is inherited and a quick sale is necessary or desired.

Opus 17

Employee

@M-MTax wrote:

If this is investment property, you may be able to do a section 1031 "like kind exchange"

But it would be advisable to follow Revenue Procedure 2008-16 and that requires owning the relinquished property for 24 months before the 1031 exchange AND owning the replacement property for 24 months after the exchange among other requirements. That ownership period for the relinquished property might not be possible if the property is inherited and a quick sale is necessary or desired.

That's why I said expert advice would be required for a 1031 exchange. I would expect that there would be an exception to the holding period for inherited property, similar to the long term capital gains rule. But I could be wrong.

In any case, if this is the taxpayer's mother's house, the 1031 doesn't apply. And if this is business property, the taxpayer probably needs advice on a lot more issues than just a 1031.