How Much Inheritance Tax is Due in New Jersey?

Full question:

I am selling a house that I inherited from a friend. We are having a closing without an attorney. I must pay inheritance taxes before the closing. The house is selling for 51,000.00. I do not know how much I will owe to make payment at closing. Where can I get this information?

Category: Taxes
Date: 04/07/2025
State: New Jersey

Answer:

Inheritance tax is a tax on the money and assets received by a beneficiary (also called a transferee or heir) from the estate of the decedent (the person who died). The estate is the grand total of everything the decedent owned and had interests in (business investments, for example) at the time of death. Beneficiaries must pay taxes on the value of whatever they inherit, though they can claim a number of exemptions to reduce these taxes. Please see the tax rate table information at the links below to determine applicability:

http://www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/itrbk.pdf
http://www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/itnrai.pdf

Please see the information at the following links:

http://www.state.nj.us/treasury/taxation/ot7.shtml
http://www.state.nj.us/treasury/taxation/revesttax.shtml
http://www.irs.gov/businesses/small/article/0,,id=98968,00.html
http://www.irs.gov/publications/p559/index.html
http://www.irs.gov/pub/irs-pdf/i706.pdf

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 much tax do you pay when you sell an inherited house?

When you sell an inherited house, you typically do not pay capital gains tax on the increase in value since the date of inheritance. Instead, the property receives a 'step-up' in basis, meaning its value is adjusted to its fair market value at the time of the previous owner's death. This can significantly reduce or eliminate capital gains tax liability. However, you may still owe inheritance tax based on your state's laws. It's advisable to consult a tax professional for specific calculations.

How to avoid capital gains tax when selling an inherited house?

To avoid capital gains tax when selling an inherited house, you can take advantage of the step-up in basis rule. This means the property's value is reassessed at the time of inheritance, allowing you to sell it without paying capital gains tax on the appreciation that occurred during the deceased owner's lifetime. Keep documentation of the property's value at the time of inheritance. Consulting a tax professional can help ensure compliance with tax regulations.

How to avoid paying capital gains tax on inherited property?

You can avoid paying capital gains tax on inherited property by utilizing the step-up in basis provision. This adjusts the property's value to its fair market value at the time of the previous owner's death, effectively eliminating taxes on any appreciation that occurred before that date. Ensure you have proper documentation of the property's value at inheritance. For personalized advice, consult a tax professional.

What happens when you inherit a house from a friend?

When you inherit a house from a friend, you become the legal owner of the property. You may be responsible for paying inheritance tax based on the property's value and your state's tax laws. Additionally, you may need to decide whether to keep, sell, or rent the property. It's important to understand your tax obligations and consult with a tax professional or attorney to navigate the process effectively.

What is the tax loophole for inherited property?

The primary tax benefit for inherited property is the step-up in basis rule, which allows the property to be valued at its fair market value at the time of the previous owner's death. This can minimize or eliminate capital gains tax when the property is sold. While this isn’t a loophole in the traditional sense, it is a significant tax advantage for heirs. Always consult a tax professional for guidance on your specific situation.

What is the step up loophole?

The term 'step-up loophole' refers to the step-up in basis provision that allows inherited property to be valued at its fair market value at the time of the original owner's death. This means that heirs can sell the property without incurring capital gains tax on the appreciation that occurred during the deceased owner's lifetime. While not a loophole in a legal sense, it provides substantial tax benefits to beneficiaries. For detailed advice, consult a tax professional.