Today TaxMama® hears from Madeline in the TaxQuips Forum with this situation. “My siblings and I just sold our family home in New Hampshire. I live in California. We each got $40,000.00. How will this affect my taxes next year?”
That’s a nice chunk of money. Have you and your siblings spoken to any tax professionals about this at all? Hold on to the funds until you have a tax pro review all the relevant documents.
How this is taxed will depend on how you and your siblings received the property – and when. And how the property was used by your parents – and since you siblings have owned it. Was it a home or a rental?
Since you inherited the property, you will have a step-up in basis for the property value. That means, for tax purposes, the cost basis of the property will rise to the fair market value on the date of the death. This increase in tax cost can affect the whole property, or only half, depending on how it was handled when the first parent died.
There are some complex issues here and you do need to speak to someone who can address all the issues, and ask you all the right questions so the tax basis in the property can be established.
Three things you should be aware of, regardless:
1) You will need to file a tax return in New Hampshire to report your share of the sale – on the basis of the tax basis information you obtain.
2) You will need to also report the sale on your California return. If there are taxes paid in NH, you’ll be able to deduct them on the CA return.
3) Profits are not based on how much cash you pull out. If the home was ever refinanced along the way, the profits may turn out to be much higher than the cash you draw out, if the property doesn’t have a full step-up in basis.
On the other hand, as an inheritance, there will probably be no tax at all.
And remember, you can find answers to all kinds of questions about property sales and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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