You’ve just inherited your grandmother’s home. Congratulations. Now what?
Inheriting property can be both a meaningful gift and a significant responsibility, said elder law attorney Lauren C. Enea, partner at Enea, Scanlan & Sirignano LLP in White Plains and Somers. In her recent article, “How is Inherited Property Taxed?,” Enea shared insights on how understanding the legal and financial effect of inherited real estate can help families preserve assets and avoid unexpected pitfalls.
“Whether it’s a family home or investment property, inherited real estate often comes with emotional and financial complexities,” added Enea, who focuses her practice on wills, trusts and estates; Medicaid planning; special needs planning; and probate/estate administration. “Beneficiaries need to be aware of how capital gains taxes and the step-up in basis work to make strategic choices – whether they plan to sell, rent or retain the property.”
Step-up in basis – Inherited property typically receives a “step-up” in cost basis, meaning its value is adjusted to the fair market value on the date of the original owner’s death. This step-up can significantly reduce – or even eliminate – capital gains taxes if the property is later sold.
Capital gains tax – If the inherited property is sold, the beneficiary may owe capital gains tax on the difference between the stepped-up basis and the sale price. The timing and manner of the sale can directly affect how much tax is owed.
Income tax considerations – While the act of inheriting property is generally not a taxable event, any rental income generated from the property is taxable and must be reported. New landlords should be aware of their responsibilities for income reporting and potential deductions.
Estate tax Implications – For higher-value estates, inherited property may be subject to federal or state estate taxes. Proactive estate planning can help reduce the overall tax burden on heirs and protect generational wealth.
Navigating co-ownership – When multiple beneficiaries inherit a single property, disagreements and confusion can arise over its use, maintenance or sale. Legal guidance is often necessary to clarify rights and responsibilities and to avoid potential conflicts.
“Inherited property can be a wonderful asset, but it’s important to approach it with a clear understanding of the tax implications and long-term impact,” Enea said. “With thoughtful planning and the right legal guidance, families can make the most of their inheritance and preserve it for future generations.”
