Capital Gains on Inherited Property Calculator

Understanding Capital Gains on Inherited Property

When you inherit property, you generally receive a "stepped-up basis." This means your cost basis for the property is its fair market value (FMV) on the date of the original owner's death, not what they originally paid for it. This is a significant tax advantage.

Capital gains tax is levied on the profit you make when you sell an asset. For inherited property, this profit is calculated as the difference between the sale price and your adjusted cost basis.

How the Calculator Works:

This calculator helps you estimate the capital gains tax liability when you sell an inherited property. Here's a breakdown of the calculation:

• Cost Basis: This is the Fair Market Value of the property on the date of the decedent's death. This is your starting point for calculating profit.
• Adjusted Cost Basis: This is your Cost Basis plus the total cost of any significant capital improvements you made to the property after inheriting it.
• Net Sale Proceeds: This is the Sale Price minus any selling expenses (like real estate agent commissions, legal fees, etc.).
• Capital Gain: This is the Net Sale Proceeds minus the Adjusted Cost Basis. If this number is positive, it represents your taxable gain.
• Taxable Capital Gain: For inherited property sold within a year of death, it might be considered short-term capital gain. If sold after a year, it's long-term capital gain. Long-term capital gains are typically taxed at lower rates. The tax rate depends on your annual income and filing status.
• Estimated Capital Gains Tax: This calculator estimates the tax based on current IRS long-term capital gains tax rates for the 2023 tax year (rates can change annually and may vary by state).
  • 0% Rate: For taxable income up to $44,625 (Single) / $89,250 (Married Filing Jointly).
  • 15% Rate: For taxable income between $44,626 – $492,300 (Single) / $89,251 – $553,850 (Married Filing Jointly).
  • 20% Rate: For taxable income above $492,300 (Single) / $553,850 (Married Filing Jointly).
  Note: This calculator uses a simplified model. Consult a tax professional for personalized advice.

Key Inputs Explained:

• Fair Market Value at Date of Death: This is crucial. You may need an appraisal to establish this value.
• Date of Death & Date of Sale: Used to determine if the gain is short-term or long-term.
• Sale Price: The amount the property was sold for.
• Cost of Capital Improvements: These are significant upgrades that add value or prolong the life of the property (e.g., a new roof, additions, major renovations), not routine maintenance.
• Selling Expenses: Costs incurred specifically to sell the property (e.g., realtor commissions, closing costs, legal fees).
• Your Annual Income: This helps determine which capital gains tax bracket you fall into.
• Filing Status: Single or Married Filing Jointly affects tax brackets.

Important Considerations:

Tax laws are complex and can change. This calculator provides an estimate only. It does not account for:

• State and local capital gains taxes.
• Net Investment Income Tax (NIIT) of 3.8%.
• Depreciation recapture if the property was ever rented.
• Potential exclusions (like the primary residence exclusion, though this typically doesn't apply to inherited property unless you move in and meet specific ownership/use tests).
• The specific tax year's income thresholds for capital gains rates, which can vary.

Disclaimer: Always consult with a qualified tax advisor or CPA for advice tailored to your specific situation.