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Will I pay capital gains tax if I inherit property in Florida?

Will I pay capital gains tax if I inherit property in Florida?

Full question:

My companion and I live together in Florida. He is the sole owner of the property. In his will he has left me the house. Since we are not married would I have to pay capital gains tax if I inherited the property or am I covered under the Lady Bird Law and/or Florida Quiteclaim Deed?

Category: Real Property
Subcategory: Deeds
Date: 04/07/2025
State: Florida

Answer:

If your companion is still living, the situation differs from if they were deceased. Inheritance typically triggers a taxable event, adjusting the tax basis for the property. When you inherit the property, its value at that time needs to be established. If you later sell the property for more than its inherited value, you may owe capital gains tax on the difference. A formal appraisal or a real estate broker's opinion can help establish the current value.

For example, if the property was valued at $25,000 in 1945 and you inherit it in 2011 without an appraisal, then sell it in 2012 for $160,000, your capital gains could be $135,000. However, if you had an appraisal done at the time of inheritance in 2011 that valued it at $145,000, your capital gains would only be $15,000, providing you with documented proof.

A Lady Bird deed, or enhanced life estate deed, allows an individual to retain their homestead exemption and protect the property from Medicaid claims during their lifetime. Upon death, the property passes to the named beneficiaries without going through probate. This deed can help avoid capital gains tax if the property is sold shortly after the owner's death. It enables the owner to maintain control over the property while also allowing for a smooth transfer to beneficiaries.

In summary, if you inherit the property, you may owe capital gains tax based on its value at the time of inheritance and the sale price later. The Lady Bird deed offers specific benefits in terms of tax and property management, but it must be executed while the owner is alive.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

How do I avoid capital gains tax on inherited property in Florida?

To avoid capital gains tax on inherited property in Florida, ensure you have a formal appraisal at the time of inheritance to establish the property's value. This value becomes your tax basis. If you sell the property shortly after inheriting it, the capital gains tax may be minimized, especially if the property value has not significantly increased. Additionally, utilizing a Lady Bird deed can help avoid probate and potentially reduce tax implications. Consult with a tax professional for personalized advice.

How do I avoid capital gains tax on an inherited house?

To avoid capital gains tax on an inherited house, obtain a formal appraisal at the time of inheritance to establish its fair market value. This value serves as your basis for tax calculations. If you sell the house soon after inheriting it, any gains will likely be minimal. Consider using a Lady Bird deed for smoother transfer and potential tax benefits. Always consult a tax advisor for tailored strategies.

What happens when you inherit a house from your parents?

When you inherit a house from your parents, the property’s tax basis is stepped up to its fair market value at the time of inheritance. This means if you sell the house later, you only pay capital gains tax on any increase in value from that date. If the house is sold shortly after inheritance, the tax implications may be minimal. Additionally, if a Lady Bird deed was used, the transfer can occur without probate.

How to avoid paying capital gains tax on property?

To avoid paying capital gains tax on property, consider strategies like holding the property until it appreciates, utilizing a 1031 exchange, or inheriting property, which steps up the tax basis. Additionally, if you sell shortly after inheriting, the gains may be minimal. Consult a tax professional for personalized advice tailored to your situation.

What happens when you inherit a house in Florida?

When you inherit a house in Florida, the property’s tax basis is stepped up to its fair market value at the time of inheritance. This means you will only owe capital gains tax on any profit made if you sell the house for more than its inherited value. If the property was held under a Lady Bird deed, it can pass to you without going through probate, simplifying the process.

Do you pay capital gains tax when you inherit a house?

You generally do not pay capital gains tax when you inherit a house. The property’s tax basis is stepped up to its fair market value at the time of inheritance. If you sell the house later for more than this value, you may owe capital gains tax on the difference. However, selling shortly after inheritance can minimize this tax. Always consult a tax advisor for specific guidance.