Tax Consequences when Selling an Inherited House in Denver

by Jan 20, 2023

Inheriting a home can come with bittersweet feelings, but mostly sweet as you’re left with a property that can enhance your life. After the loss of a loved one though, you may wonder about the tax consequences of selling the inherited house in Denver, Colorado. Fortunately, tax laws aren’t designed to add more burden when you inherit property. This means the financial consequences are less severe than you might think—great news for anyone in this situation.

The federal government and many state governments recognize the special circumstances surrounding inherited property. The Internal Revenue Service (IRS) considers any gains on the sale of an inherited home to be long-term capital gains, not ordinary income. This means that the recipient generally pays taxes at a lower rate than they would pay for their regular income.

In addition, you may also qualify on a step-up basis if you inherit an asset during your lifetime rather than in your will or trust. That means the value of the estate’s assets is adjusted from the original purchase price to its current market value. Therefore, it can significantly reduce any potential tax exposure caused by selling the house since only capital gains accrued after inheriting will be taxed.

Determining an Asset’s Original Cost for Tax Purposes

To understand how taxes will be applied to an inherited home, you need to know how the “basis” is calculated. “Basis” refers to the cost of an asset for the purpose of calculating capital gains and other taxes. When a person dies, the value or basis of their property in Denver is increased to the market value at the time of their death. For example, if a person purchased a home 20 years ago for $25,000 but it was worth $100,000 at the time of their death, that property would be valued at $100,000 for tax purposes.

How Gains and Losses are Taxed

If you sell property that you use for personal or investment purposes, such as a house or furniture, the money you make from that sale is called a capital gain or loss. For example, if you sell an inherited home in Denver, the sale is considered a capital gain or loss for income tax purposes.

You usually have to own a property for at least a year in order to get a lower rate of long-term capital gains, but an inherited home is different. No matter how long you’ve owned an inherited home, it will always be treated as a long-term investment.

Clearly Document the Sale

If you sell an inherited home, you’ll need to report it for income tax purposes by calculating your capital gain or loss. To do this, simply subtract the basis (the original value of the property) from the sale amount. Once you’ve calculated your gain or loss, be sure to report that amount to the relevant authorities.

While it can be difficult, selling an inherited home doesn’t have to be all bad. You just need to follow the right steps, such as going through probate in Denver. After you file a petition with the court authorizing you to sell the property, things will become much easier—especially if there are multiple people involved in inheritance decisions.

Sell Your Denver Home Fast to Blue Halo Homes

After you determine how much tax you owe, pay capital gains or losses taxes from the house sale. Then, for a legitimate and seamless home sale in Denver, call us now.

If you have inherited a home that you don’t want or can’t take care of, consider selling it to relieve yourself of the burden. At Blue Halo Homes, we buy houses in Denver, Colorado for fair cash offers–and we even purchase unwanted inherited homes with our own money.

To get a quick and fair offer on your home in Colorado, fill out this form now.

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