Taxes on a house

September 2, 2014 7:01 PM

I will be contacting a CPA. But I am a novice at this and I am wondering about the taxes on the sale of a joint tenancy house.

Primary owner of a house died and the house was left to two siblings in joint tenancy. Each sibling will get 50% of the proceeds (about $100,000). Neither sibling lived in the house. Is this considered inheritance? capital gains? I know a tax accountant will help, but I am not ready to see one yet.

posted by buzzieandzaza to Work & Money (3 answers total)

Was it left to you in a trust? What kind of trust?

As I understand it, in the US, and federally speaking (I don't know every state's laws) if things are completely simple, USUALLY what happens is that the house's value as of the date of death is considered your starting point, and only the value up or down since then counts as profit (or loss).

Let's say the original owner bought it for $30,000. When she died, it was worth $200,000. When you finally sell it, it's gone up to $220,000. Let's pretend there are no expenses associated with selling it, and it sells for the $220,000. Your (plural) capital gain is only $20,000. That means, each of you gets a capital gain of $10,000. Also, that gain is long term gain, (if the original owner bought it more than a year ago) which is usually taxed at 15%. So you would owe 15% of $10,000 to the IRS. So would your sibling.

Again, that's federal. Many (most?) states have a tax on top of that. I think California is something like 9%.
posted by small_ruminant at 7:13 PM on September 2, 2014

Assuming this is in the U.S., it's likely that no taxes will be owed. Federal estate taxes apply only to estates of more than $5+ million. Some states tax lesser amounts, but all are well above $200,000.

Capital gains taxes apply to the increase in value above what is known as the "basis." In many cases, that's what you paid for it. But when someone dies, there's what's called a "step-up in basis," which means the basis for the beneficiaries is the value of the property on the date of death. So the siblings should only owe taxes on any increase in the value of the house from the date of death until the date of sale. If you're selling it shortly after death, that's probably a very small amount, if any.
posted by Mr.Know-it-some at 7:15 PM on September 2, 2014 [1 favorite]

As the others noted, there's probably no gain because of the basis step up at death. If the sale occurs long enough adter death, there may be gain or loss, in which case you split the gain and it is long term capital gain or loss.
posted by jpe at 4:14 AM on September 3, 2014