Inheritance and/or Capital Gains Tax?
In order to avoid probate, my mother deeded her home over to her six children before her death. The house is being sold, how will the six children be affected by inheritance and/or capital gains taxes? How are capital gains taxes figured? Due to all of the improvements made, and inflation, the value of the house is much larger than it was when purchased 54 years ago.
1 Answer from Attorneys
Re: Inheritance and/or Capital Gains Tax?
When real estate is gifted during lifetime, the grantee (or donee, in your case the children) take the property with the same basis as the grantor-parent. When the real estate is inherited the children take the real estate at the current fair market value. So to the extent the proceeds from the sale are taxable, there is a great deal of difference in the value of the basis to be subtracted from the sales price to determine the taxable proceeds. Currently, if inherited, Indiana allows each child $100,000 prior to imposing a tax. Depending upon the size of the parent's estate, with 6 children, it is more likely that there would be no inheritance tax and no gain on the sale to be taxed. With the property gifted before death, each child will report 1/6 of the proceeds less 1/6 of the basis or the cost to the parent.