Inheriting the home of a long-lost relative sounds like a dream — at least, until you discover that you might owe tax on the property. We buy houses in Pittsburgh, PA, and in this guide, we’ll explain tax on inherited property and ways to avoid paying it. You’ll also learn how to sell your inherited house the easy way if you’d rather not keep it.
Do You Owe Tax on Inherited Property in Pittsburgh, PA?
The good news is that you don’t have to pay estate tax in Pennsylvania, but you may have to pay inheritance tax on the value of your inheritance once you’ve received it. The amount you’ll owe depends on your relationship to the deceased (check out what the IRS has to say on gift and inheritance tax to learn more).
Spouses and children under 21, including adopted children and step-children, don’t owe any inheritance tax. Lineal heirs and direct descendants, including parents, grandparents, and grandchildren, pay 4.5% inheritance tax. Those in this category pay no taxes on the first $3,500 of their inheritance.
And then there’s capital gains tax, which you’ll pay if you choose to sell an inherited property in Pittsburgh. The IRS doesn’t tax you on the full profit from the sale, though. Instead, you’ll pay taxes on the sale price minus the home’s fair market value at the time you inherit it. This is called a “step-up in basis” or “stepped-up basis.”
There are two types of capital gains tax: short- and long-term. You’ll pay short-term capital gains tax if you sell the property within a year of inheriting it. If you take more than a year to sell, you’ll owe long-term capital gains tax. Long-term capital gains are usually taxed at a lower rate than short-term ones.
Avoiding Capital Gains Tax on Inherited Property
Capital gains taxes can feel like a sucker punch, so naturally, you’d like to dodge that hit however you can. It’s possible to avoid or reduce capital gains tax with certain tax exemptions.
- Sell immediately: Selling immediately allows you to lock in the property’s value, so you might not owe capital gains tax.
- Rent out the property: Renting the house out lets you defer capital gains tax, and as a plus, you’ll earn rental income. You’ll need to set up a 1031 exchange, which lets you reinvest the profits from the sale of an investment property into a similar property.
- Move into the home: If you make the property your primary residence and live there for at least two out of five years before selling, the IRS lets you exclude up to $250,000 in capital gains tax ($500,000 for married couples filing jointly).
We’ll Give You a Great Cash Offer for Your Inherited Property in Pittsburgh, PA
You may or may not owe tax on inherited property, but either way, we’ll make you a fair cash offer for your house. Wondering, “How long does it take to sell a house in Pittsburgh, PA?” When you work with Sell Pittsburgh Now, LLC, we can make you an offer in just 24 hours. Call (412) 275-5238 to learn more.