Inherited House Tax Consequences In Indiana

First of all, please note that this article is for general information to get started and this shouldn’t be construed as tax or legal advice.  As you can imagine, inheriting a house can have it’s benefits.  You may be able to use the value of the property to improve your life.  At the same time, you may still be mourning the loss of someone dear.  In the middle of all these emotions, you’ll likely be left wondering what steps to take next.  For many people in this situation, they want to know what are the tax implications if they sell an inherited house in Indiana.  The good news is that the tax laws are generally considered favorable to heirs and the financial consequences are designed to not be burdensome.

Calculating The Basis

The first step is knowing how to calculate the ‘basis’ of your inherited home.  Most of the time, the basis is considered the amount you originally paid for a home.  In a situation where you inherit a house in Indiana, the basis is calculated as the fair market value of the house on the date of the decedent’s death.  This is often referred to as a ‘stepped-up basis’.  For example, let’s say the deceased bought a house for $50,000 years ago, but at the time of death, the home was worth $150,000.  For calculating capital gains, the basis of the house is now considered ‘stepped-up’ to $150,000.

Capital Gains Of Inherited Houses

We’ll continue using the example from before.  Let’s say you decide to sell the inherited house and the net proceeds from the sale are $170,000.  You would only have to pay capital gains tax on $20,000 ($170,000 – $150,000) instead of $120,000 ($170,000 – $50,000), a significant savings.  Another benefit is that even if the sale of the inherited property is within a year, it will still be considered long-term capital gains, which typically results in a tax savings.  The details of long-term vs. short-term capital gains are beyond the scope of this post, but it’s an important benefit that you may want to discuss with your tax advisor.

When deciding whether to sell or keep inherited real estate, it’s wise to reach out to the appropriate estate and probate resources available so you can learn about the options available, enabling you to make an informed decision.

As always, feel free to reach out to our helpline. (317) 344-8908 or contact the author at mark@indyinherited.com or Indyinherited.com.

Mark McGarvey