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IRS FAQ on inherited assets is pretty good here: https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances https:

by Judson 6y ago

IRS FAQ on inherited assets is pretty good here: https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances https://www.irs.gov/faqs/interest-dividends-other-types-of-i... Without any estate planning, you would pay $0 in capital gains because the basis resets to FMV at the time of death and the sale would be taxed as regular income (37% marginal bracket on $1,000,000 sale). By my reading, this doesn't seem like a giant tax break. Edit: Totally wrong. $0 taxes owed because basis is stepped up and sale is NOT treated as income.

graton 6y ago
Well I paid $0 in taxes on my parent's death. And when we sold it no income tax was paid. Our accountant checked everything and made sure it was done correctly. From the page it does say: If you sell the property for more than your basis, you have a taxable gain. But your basis is set upon the FMV (Fair Market Value) of the property upon death of the decedent. The basis of property inherited from a decedent is generally one of the following: 1. The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)). Also, selling a house is not typically considered income. It is considered a capital gain. So you don't pay income tax on sale of a house. There might be exceptions if you are a real estate investor, but I don't have any expertise in that area.
- Judson 6y ago
  Yea, totally wrong here. My assumption was that a lot of estate planning would be required to avoid major taxes, but seems like the default choice is a pretty good deal (tax-wise) for those involved. Good to know!
- voisin 6y ago
  You paid nothing but presumably your parents’ estate paid taxes on the deemed disposition at FMV less its basis.
  - graton 6y ago
    No, it did not.
    - voisin 6y ago
      So there was a bump in tax basis to FMV that essentially creates a tax free capital gain for the beneficiary?
      - graton 6y ago
        Correct.
      - lakis 6y ago
        Yes

by Judson 6y ago

graton 6y ago

Well I paid $0 in taxes on my parent's death. And when we sold it no income tax was paid. Our accountant checked everything and made sure it was done correctly. From the page it does say: If you sell the property for more than your basis, you have a taxable gain. But your basis is set upon the FMV (Fair Market Value) of the property upon death of the decedent. The basis of property inherited from a decedent is generally one of the following: 1. The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)). Also, selling a house is not typically considered income. It is considered a capital gain. So you don't pay income tax on sale of a house. There might be exceptions if you are a real estate investor, but I don't have any expertise in that area.

Judson 6y ago
Yea, totally wrong here. My assumption was that a lot of estate planning would be required to avoid major taxes, but seems like the default choice is a pretty good deal (tax-wise) for those involved. Good to know!
voisin 6y ago
You paid nothing but presumably your parents’ estate paid taxes on the deemed disposition at FMV less its basis.
- graton 6y ago
  No, it did not.
  - voisin 6y ago
    So there was a bump in tax basis to FMV that essentially creates a tax free capital gain for the beneficiary?
    - graton 6y ago
      Correct.
    - lakis 6y ago
      Yes