Do I Pay Taxes on an Inherited House?

If you’ve recently inherited a house or property, chances are it’s due to a loved one passing away — in which case, you’re probably in the throes of all kinds of emotions. Aside from your grief, you’re also facing daunting decisions about how to handle the estate… and all the confusion and stress that comes with that.

If there are several heirs, there may be disagreements about what should happen with the house. If the executor lives far away, it may be challenging to sell or manage an inherited property from a distance. Sorting through all the belongings first can be physically and emotionally draining. Not to mention the condition of the home: It’s common for an inherited house to come with structural problems, hidden damage, or extensive repair needs.

All that to say, taxes are probably not high on your list — and yet, they can be an important consideration in the coming weeks and months. Let’s talk about the taxes on an inherited house, what you need to know, and your options for how to move forward.

Inheritance Tax on the House

Both inheritance taxes and estate taxes are based on the wealth of a deceased person. While the terms are used almost interchangeably, they are marked by a key difference: An inheritance tax is paid by the beneficiary, whereas an estate tax is a levy on the estate of the person who died.

If I inherit a house, do I pay taxes?

So what is an inheritance tax? In short, it’s a state tax that you pay when you inherit money or property — and how much tax you pay on inheritance all depends on what state you reside in.

Fortunately, there are a few states that don’t have an inheritance tax or an estate tax, and Florida is one of them. Florida’s inheritance tax rate is zero, which means that a beneficiary of a deceased person in Florida does not have to pay inheritance tax on a house. (It’s no wonder that so many elderly individuals relocate to Florida to reduce their tax liability, especially as they begin estate planning.)

Florida Inheritance tax Exceptions

It’s important to note that while the state of Florida does not impose an estate tax, the federal government still does… so there are technically still some instances where you would have to pay inheritance tax on a house in Florida. Fortunately, that federal estate tax only applies if the value of the entire estate exceeds about $12 million (or $24 million for a married couple), which means very few people need to worry about it.

Taxes You Pay After Inheriting a House

Everything we’ve covered so far applies to just the first step of inheriting a home. But of course, the process doesn’t usually end there. Whether you choose to maintain the possession of the house or sell could also have tax implications.

If You Stay: Taxes on Keeping an Inherited House

On the one hand, you may decide to hang on to the house for sentimental or logistical reasons. In that case, your main considerations will be:

  • Property tax requires owners to pay an amount of money based on the value of their land and buildings — and property tax on inherited property is the same as on any other home. Florida real property tax rates are implemented in millage rates, which is 1/10 of a percent. This equates to $1 in taxes for every $1,000 in home value. Thankfully, Florida’s average property tax rate is 0.98%, which is slightly lower than the US average.
  • Income tax will apply to any income generated by the property (such as if the property is rented out). While Florida doesn’t have a state income tax, you will be subject to federal income tax for any rental income.

If You Go: Taxes on Selling an Inherited House

Of course, when a house is inherited, the new owner assumes all legal rights and responsibilities for the real estate… and if you decide you don’t want that responsibility, you’re probably looking to sell. In that case, you’ll pay tax on the sale of the inherited house.

The most important consideration here is the capital gains tax — in other words, how much the property’s value increases from the day you inherit it to the day you sell it. Fortunately, this tax will only be based upon the increase in the property’s value from the date of the death, not how much the home appreciated during their lifetime. (For example, if you inherit stock with $20 on the date of death and sell it for $25, you would have to pay income tax on the $5 gain.)

Taxes on an Inherited House: Final Thoughts

There’s a lot to consider when you inherit property — and tax implications regardless of your choice. Fortunately, if you’re located in the Tampa Bay area, KM Home Buyers is here to help. We purchase all types of homes, including inherited properties.

In this difficult time, you have enough to worry about. Give us a call today and learn how we can help take an inherited home off your hands with a free, no-obligation cash offer.