For many, inheriting a home can be a walking paradox to experience: overnight, you are left with property of sizable value you can use to improve your life while still also processing and mourning the loss of a loved one. For those who are pondering the next best move to make in this situation, understanding the tax consequences when selling an inherited property can absolutely inform your ultimate decision on how to handle the property itself. Thankfully, tax laws have been designed in such a way not add additional burden upon the person inheriting the property. Typically, the financial consequences are less daunting than what you would expect, which is good news for you.
Tax Consequences When Selling a House You Inherited in Massachusetts , Massachusetts
Inheriting real estate in Massachusetts often comes with emotional and financial complexities. One of the most important aspects to understand is the tax implications when selling inherited property. Whether you’re planning to keep or sell the home, knowing how the IRS treats such sales can save you from unwanted surprises.
In this guide, we’ll break down how basis is calculated, how capital gains taxes apply, and what steps you need to take when reporting the sale.
Understanding Step-Up in Basis for Inherited Property
The “step-up in basis” rule is one of the most significant tax benefits of inheriting property. The cost basis of a property is the amount used to calculate your capital gains or losses when you sell it. Instead of using the original purchase price, the IRS allows the basis of inherited real estate to be “stepped up” to the fair market value (FMV) at the time of the original owner’s death.
Example:
If your loved one bought a home in Massachusetts 25 years ago for $40,000, but the FMV at the time of their passing was $200,000, your new basis for tax purposes is $200,000—not the original purchase price. This means if you sell the house for $210,000, your capital gains would only be $10,000.
How Capital Gains Taxes Work for Inherited Homes
Whether you sell the inherited house immediately or wait several years, the IRS treats all gains from inherited property as long-term capital gains, even if you owned the home for less than a year.
This distinction is crucial because long-term capital gains are taxed at lower rates than short-term ones. Depending on your total income, your tax rate could be 0%, 15%, or 20%.
If the selling price is higher than the stepped-up basis, you’ll owe capital gains tax on the difference. If you sell the home at a loss, you might be able to deduct that loss depending on your situation and how the property was used.
Reporting the Sale of an Inherited House
Once you sell the inherited property, you must report the sale on your income tax return. Start by calculating your gain or loss:
Capital Gain/Loss = Sale Price – Stepped-Up Basis
This figure goes on Schedule D (Capital Gains and Losses) of your tax return. Be sure to keep records such as the death certificate, appraisal documents, and closing statement for tax purposes.
Legal Steps Before Selling the Inherited Home
Before selling, you may need to go through the probate process in Massachusetts , unless the property was placed in a trust or titled jointly with rights of survivorship. Probate legally authorizes the transfer of property to the rightful heirs. If multiple heirs are involved, they all must agree before the property can be sold.
Once probate is complete and ownership is clarified, you’re legally allowed to move forward with the sale.
Planning for Tax Payments
After determining the amount of gain or loss, it’s essential to plan for capital gains tax payment. The amount owed depends on the difference between the stepped-up basis and the final sale price. You may want to consult with a tax professional to understand any exemptions, deductions, or offsets available to reduce your taxable gain.
Sell Your Inherited Property Quickly and Easily
Selling an inherited house in Massachusetts , Massachusetts can be a smart way to avoid ongoing maintenance costs, property taxes, and legal stress. At Revival Homebuyers, we specialize in buying inherited homes fast and as-is. Our local team understands both the market and the legal process, and we’ll help you complete a stress-free sale with no repairs, agent fees, or delays.
📞 Call Revival Homebuyers at (413) 351-9294 today to discuss the tax consequences when selling a house you inherited in Massachusetts , Massachusetts. We’ll walk you through your options and make a fair cash offer with full transparency.
Still wondering what to do with your inherited home in Massachusetts ?
Let Revival Homebuyers guide you through the process from probate to closing, so you can move forward with confidence.