What Laws Pertain to Selling Inherited Property?


Quick Answer

According to the IRS, the tax code generally referred to asBasis of Assets is the governing regulatory work for determining whether or not sale of inherited property constitutes the acquisition of taxable income. Gift and Inheritance tax law is generally involved in making this calculation to determine tax eligibility.

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Full Answer

Sold inherited property is evaluated by the IRS once proper paperwork has been filed. This paperwork includes an estimate of the property's fair market value at the time of either the willing party or decedent's death or at an alternate date if the decedent's executor opts to pursue that course.

If the resultant fair market value is exceeded, the income constitutes a taxable influx of funds. This means that the sale can be taxed and that it must be reported according to Schedule D of IRS Publication 550. Sellers not exceeding this fair market value have not exceeded their basis in the property and are thus exempt.

Basis can be adjusted by various methods including losses taken improving a property, but they still cannot be inflated to exceed the fair market value of the property. This means that an inheritor can maintenance and develop property and account for those expenses in a sale without risking being taxed by increasing their basis.

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