Filing a tax return after inheriting a home is a whole different procedure compared to income or business-related taxes. Many people overlook this but they should know that taxes from inherited properties must also be IRS-documented. Here’s how to do it.
Determine the Property’s Value
A property’s value change for many reasons such as age, location, style, and investment return, among many others. As a result, it is important to determine the value of an inherited property on the date of the previous owner’s death, not on the date of its inheritance. The determined value will serve as its purchase cost, establishing the home’s tax basis.
Determine Gain or Loss
If you are selling the inherited property, then you must determine your gain or loss by subtracting the basis from the sale price, using Schedule D as the report of sale. According to a company that specializes in selling inherited property in St. Louis, inherited property always qualifies for long-term gain rates no matter how long you kept it before selling. But, if you’re planning to sell the home lesser than its appraised value, then you cannot claim a loss as you didn’t invest directly in the property.
Compute Capital Gains Liability
To compute your capital gains liability, list any other relevant short- and long-term investment gains using the calculations provided by the IRS. If you earned less, then you won’t have to pay capital gains taxes. Otherwise, you will have to pay 15 percent on the realized gains or profits.
Transfer Gains and Losses
After transferring realized gains and losses as per Line 13 of Form 1040, in the “Income” section you must submit Schedule D with other tax paperwork upon filing your return. Doing so will legally file the taxes of your inherited property.
Filing taxes after inheriting property is a time-consuming procedure but doing so is important in abiding federal laws. Make sure to follow the steps and know the value of your inherited home.