The tax consequences when selling a house inherited in Austin can be hard to understand and untangle much of the time. The relevant laws may seem fairly simple at first glance, but they get complicated when you factor in all the legal conditions and nuances. The short version is that if you made gains, you'll owe taxes, and if you had a loss, you may have a tax deduction. But then it gets complicated because whether you made a profit or had a loss also depends on when the decedent died and the use you made of the house. What Are the Tax Consequences When Selling a House Inherited in Austin? Watch this!

1. What Are the Tax
Consequences When
Selling a House
Inherited in Austin?

2. The relevant laws may seem fairly simple at first glance, but
they get complicated when you factor in all the legal
conditions and nuances. The short version is that if you
made gains, you’ll owe taxes, and if you had a loss, you may
have a tax deduction.
But then it gets complicated because whether you made a
profit or had a loss also depends on when the decedent
died and the use you made of the house.

3. What Are the Tax Consequences When Selling
a House Inherited in Austin?
Capital Gains or Losses Taxes
Reporting the Inherited House
“Basis” Determination
Reporting Sale of the Inherited House

4. Capital Gains or Losses Taxes
The tax consequences when selling a house
inherited in Austin TX include being subject to capital gains
taxes. Capital gains or losses are those that stem from the
sale of items you use for personal or investment purposes,
such as stocks or a house. So for income tax purposes, the
sale of an inherited house in Austin is treated as a capital
gain or loss.

5. Reporting the Inherited House
In some cases, the executor has to file an estate tax return to
report the inherited house. But this is only if the estate exceeds
the inflation-adjusted exemption amount.
The determination of the gain or loss on
a house sale depends on the “basis” of
the house. As the basis goes higher, the
taxable gain from a sale decreases.
There are, however, different rules for
the sale of an inherited house that allow
for a special stepped-up basis.

6. “Basis” Determination
The basis of the house depends largely on when it was
inherited. In general, the basis is the fair market value on the
date of the decedent’s death. What this means is that the
capital gains taxes you owe are based on gains above the
property value at the time of the decedent’s death – not what
the decedent paid for the house.

7. If you never lived in the house and if it sells for less
than what the fair market value was at the time of
death, then you have a deductible loss. Just be aware
that only $3,000 of such losses can be deducted each
year against your ordinary income. Anything above
that $3,000 will have to be carried over as deductions
in future years.

8. Reporting Sale of the Inherited House
Obviously, when you sell an inherited house, you
have to report the sale (and gains or losses) when
you file your income tax return. To calculate the gain
or loss, you have to subtract the basis from what
you received for the sale.

9. To report the gain or loss, you need to use the standard
document for this purpose, the IRS Schedule D. You also have
to include the gain or loss on your personal Form 1040 tax
return. And make sure you use the Form 1040 (and not the
Form 1040A or Form 1040EZ) for the year in which you sold
the inherited house.
The tax consequences when selling a house inherited in
Austin can be complex and difficult to understand at
best.It’s usually a good idea to find a professional to help
you navigate the tax waters.

10. We’re ready to help you reach your real
estate goals and will be glad to answer any
and all questions. Contact us by phone at
512-593-6990

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