Tax obligations on an inherited house

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Tax obligations on an inherited house

Daryl King
Member since 2020 · 8 posts · 0 votes

Can someone help me with a Probate situation. My Father past away May5th 2021 and I am just starting the probate process. He owned a house free and clear worth approx 115K. What will be the tax requirements after put in my name whether I sell or possibly keep for a rental property? Basically what are a couple options I could face? I am in Tulsa Oklahoma area. Thank you in advance!

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Doug Spence
Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
5y

@Daryl King I'm sorry to hear about the passing of your father. This is a question worth seeking out a knowledgeable CPA! If you are looking to possibly get into the real estate rental world with this property, you are probably going to want to hire a CPA anyways to make sure you're filing taxes correctly. A good CPA will more than pay for themselves with the tips they can provide you to reduce your taxes. 

If you do decide you don't want that property anymore, let me know because I buy properties in Tulsa. Best of luck and let us know what you decide to do!

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    5y

    Your tax basis (i.e., the amount used to determine gain, or the portion thereof that represents depreciable basis) will equal the FMV at date of death. In other words, your tax basis represents the step up (or step down) to FMV that occurs at date of death.

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    If I understand right, if at time of death the house is worth 115k, then I sell at 120k, I will just be taxed on the 5k? Would there be a difference between selling in 1st year or 5 years later, does the step up or  step down still apply the same?

    also do you know how I would be taxed if I kept as a rental for several years?

    thank you for you response 

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  • Doug Spence
    Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
    5y

    @Daryl King I'm sorry to hear about the passing of your father. This is a question worth seeking out a knowledgeable CPA! If you are looking to possibly get into the real estate rental world with this property, you are probably going to want to hire a CPA anyways to make sure you're filing taxes correctly. A good CPA will more than pay for themselves with the tips they can provide you to reduce your taxes. 

    If you do decide you don't want that property anymore, let me know because I buy properties in Tulsa. Best of luck and let us know what you decide to do!

    2Reply
  • Tom O'Stasik
    Real Estate Agent · Tulsa, OK · Member since 2019 · 130 posts · 66 votes
    5y

    @Daryl King sorry to hear about your father. Let me know if I can help at all as I’m a real estate agent in Tulsa

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    If you plan to live in the property it will be tax free for the first $250k. 
    if you don’t plan to live in it and it was worth $115k the day your father passed that will be your new basis. If you make it a rental you’ll start depreciating from there. 
    lastly, it doesn’t matter what you sell it for, but how much you have after paying selling costs. So if you sold for $120k you’d pay at least $5k in closing costs and still not owe any taxes. 

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  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    5y

    If you keep the property, be sure to get any utility and tax bills transferred to an address you can receive them at.

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @John Teachout, thank you!

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @Bill Brandt, thank you for that explanation. I Didn't think about that!

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @Tom Ostasik, thank you!

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @Douglas Spence, thank you for the response

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  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Daryl King

    If your looking to consider renting it to avoid taxes I don’t believe that is necessary, but could be savvy. I’ve been involved in the sale of property when probate was involved a handful of times, and to my knowledge they were able to obtain 100% of the proceeds. As stated, CPA advice > anyone else when it comes to taxes.

    I think holding income generating property free and clear is under rated. A friend of mine and fellow investor has a debt free portfolio and his peace of mind when Covid & the shut downs happened was 100x anyone else who wasn’t sure if the market was going to crash or what. I’m not trying to get into debt Vs leverage here as I myself leverage but it could be a “safe bet.” (There isn’t necessarily such a thing, all investing has risk.)

    On the flip side. Everything I’ve done off market that has been the most profitable for me or investors I work with has often been something that someone inherited and was completely burnt out and practically wanted to give it away. I wouldn’t make the decision to keep it if you aren’t also planning to grow a portfolio, or grow in real estate in general. Inherited properties tend to have - obviously perhaps - a lot more emotional dynamics and that in and of itself could affect your profitability.

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  • Craig Jeppesen
    Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
    5y

    Google stepped up basis.

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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @ Nate Sanow, thanks for the reply. I actually am getting into building my portfolio so just so happens I can take this sad situation and make it a profitable one as well. I will use leverage most of the time as well but do have two properties free and clear which is definitely peace of mind!

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  • Joseph Hummel
    Rental Property Investor · Crystal Bay · Member since 2019 · 59 posts · 38 votes
    5y

    @Douglas Spence

    Agreed. Free and clear doesn’t actually mean free or clear. We had to go through this a few years ago. Court is helpful usually. Each state has different rules too, so get a good CPA it will be worth it to pay them to get the right answers.

    Assuming no other taxes or debts are due? Its a big headache and I’m Sorry to hear about the passing of your dad, if you could have someone else handle it- it might relieve some of the headache/heartache involved in tying up their affairs and let you grieve.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    It might be worth it to get an appraisal as well to establish that FMV as well should you want to hold onto it. I'd recommend talking to one or two knowledgable CPAs about your specific situation and go from there.

    [email protected]
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  • Daryl King
    OP
    Member since 2020 · 8 posts · 0 votes
    5y

    @Aaron Zimmerman, this current market will probably be very beneficial for this as well I would think. These properties have never been so high, so should cushion some if and when I do decide to seal some years down the road. Thanks for reply!

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Daryl King

    You want to speak with a tax advisor to get proper tax advise.

    You may get a back-dated appraisal if the property was already distributed to you.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
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