How much are capital gains taxes upon the sale of an inherited house?

Jerry: My brother and inherited a house through the Homestead Act and it was a Florida home and we were living in Massachusetts at the time and I'm living in Florida now. The question is the title company is sending us a 1099, so I'm wondering if we're on the hook for our taxes on this or is it considered a inheritance?

Attorney Tom Olsen: When did you inherit this house, Jerry?

Jerry: Back in I believe it was in June.

Tom: Okay. Jerry we're going to pot you down. We've got some background noise. If you continue to listen, we'd appreciate it. Jerry, first of all, inherent property through Homestead Act, I've been a lawyer in Florida for over 40 years, I've never heard of that, but let's assume you got it through a probate or through a living trust or through a lady bird deed, somehow you ended up with this property upon the death of your mother and father. The good news, Jerry, is that when you inherited this piece of property, your basis for capital gains tax purposes is the value at the date of parent's death. If they died in June 2022, your basis is what the value was worth in June of 2022, and that's only about, what is that, eight or nine months passed? We might assume that what it was worth in June of 2022 might very well be what it's worth right now, and that means that your basis is what the value is right now, Jerry. That means if you were to turn around and sell it, you're not going to have to pay any capital gains taxes. Jerry, does that answer your question for you?

Jerry: Yes, sir. You've never heard of like-- I guess from what my brother was telling me, that is our names were put on the Homestead Act that we would get the house after their passing, but you've never heard of that before?

Tom: You're misstating him, misquoting him, misunderstanding him. I don't really care how it got done but apparently it did get done. Jerry, if this is really an issue for you, you could reach out to the Olsen Law Group. We could take a look at this piece of property online and find out exactly how it came into the name of you and your brother and we can confirm it, but, Jerry, I do believe it's all going to be good news for you that there will be no or minimum capital gains taxes because of what's called the step-up basis. That's the term that the IRS uses, step-up basis. The key is that you cannot get this piece of property until mom and dad have passed away. I don't care whether you get it through a trust, through a probate, through a will, through a lady bird deed, they are all going to get you the step-up basis.

Attorney Holley Knapik: Indeed.

Tom: You can see it's important to get the step-up basis on any asset that's got a low basis and a high value, whether it's a home or a rental property, investment property, the stock that you bought in Tesla, or the painting hanging on your living room wall, but as far as the real estate is concerned, if you were to add your child's name to the deed to your property, which we tell you don't do it, but if you did it anyway, you might avoid probate on it but you may cause them a lot more in capital gains taxes because they're not going to get the step-up basis.

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