The question on whether there are capital gains on inherited property has been asked quite often. The answer is a resounding yes! You are taxed when you liquidate inherited property. There is a specific process that you must follow in order to calculate your full tax liability. The first step you need to know is that you can actually get the exact tax liability amount free based on your information. Just follow the link to your left and submit your information and this company will calculate your full tax liability based on the information that you give them free of cost.

That being said we are going to show you exactly how to calculate capital gains on inherited property. The first thing that you are going to need is a great financial calculator, this to maker sure you don’t make any mathematical errors.

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First calculate your cost basis: This is tricky – The formula for this is

Valuation of the Property at Time of Death of Individual + Cost of Property Improvements + Cost of Sales (realtors commission, advertising etc.) = Cost Basis.

Once you have totaled this amount then you subtract it from the price that you sold the property for and you will have calculated your Capital Gains/Loss.

Normally the valuation used is as at the date of the bequest or’s death though rarely will the executor utilize an alternative date. Now that you have calculated your capital gains then you must now calculate how many taxes you are to pay. That should be done on the IRS form 1040 that basically outlines how much tax you are required to pay. However note that the most beneficial issue is that as it pertains to capital gains on inherited property is always treated as being held for a long-term even if you held the property for less than year. In effect what this means is that you will be taxed at the lower long-term capital gains rate of 15% of gains. And it is even better if based on your tax status your marginal tax rate is already 15% or less the capital gains on your inherited property will be taxed at a rate of 5%.

Schedule D Form 1040 – Capital Gains and Losses

Instructions to Complete Schedule D Form 1040

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