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Specifically, you'll need to know the property's fair market value (FMV) to calculate your cost basis for tax purposes. How do you determine the fair market value of inherited property? There are ...
When you inherit property, the IRS applies what is known as a stepped-up basis to that asset. Here's how capital gains are taxed on inherited property.
Parangi offers this example: “If a parent purchased a home for $100,000 and it’s worth $500,000 at the time of their death, the heir’s basis becomes $500,000, not the original $100,000.”
Section 2032 provides an alternate method of determining the property's new basis. If the property is not disposed of within six months of the decedent's death, the executor may elect to use the property's fair market value six months after the date of death but only if such an election results in a decrease in the value of the gross estate. [2]
The amount remaining after offsetting is the net gain or net loss used in the calculation of taxable gains. For individuals, a net loss can be claimed as a tax deduction against ordinary income, up to $3,000 per year ($1,500 in the case of a married individual filing separately). Any remaining net loss can be carried over and applied against ...
Basis (or cost basis), as used in United States tax law, is the original cost of property, adjusted for factors such as depreciation. When a property is sold, the taxpayer pays/(saves) taxes on a capital gain /(loss) that equals the amount realized on the sale minus the sold property's basis.
You are correct that the IRS lets individuals exclude up to $250,00 in profits from the sale of a primary residence from taxes. Married couples filing their taxes jointly can exclude up to $500,000.
Inheritance taxes are paid not by the estate of the deceased, but by the inheritors of the estate. For example, the Kentucky inheritance tax "is a tax on the right to receive property from a decedent's estate; both tax and exemptions are based on the relationship of the beneficiary to the decedent." [52]