Tax liabilities after you die? (1 Viewer)

[NewlyRetired]

For the last 4 years I have been managing my Aunt's finances as her mental state diminishes.

She is now close to the end, having just started hospice care.

She has one major asset left, which is her house.

We will be selling the home shortly.

The home has increased a tremendous amount in value so it will trigger a tax liability.

If she passes in the near future, do I need to wait all the way until next year to pay the taxes, or is there a way to pay taxes immediately when some one passes?

This question is in regards to being able to release the rest of her estate to her heirs, which can't occur until all bills and taxes have been paid.

 

[Galileo]

I’m no expert, but if the house is sold, aren’t all the tax issues squared away at the time of sale?

 

[Juxtatarot]

I’m no expert, but if the house is sold, aren’t all the tax issues squared away at the time of sale?

I think he's referring to income tax on capital gains due to price appreciation on the house.

 

[kip stabone]

Wait until she dies to sell the house.  Take the step up in basis on death.  If you sell during her lifetime, she may qualify for the home sale exclusion depending on how long she has been living outside of the home.  

None of this is tax advice.  Talk to an accountant/attorney about your specific situation.

 

[apalmer]

Wait until she dies to sell the house.  Take the step up in basis on death.  If you sell during her lifetime, she may qualify for the home sale exclusion depending on how long she has been living outside of the home.  

None of this is tax advice.  Talk to an accountant/attorney about your specific situation.

This. Generally, if she's lived there for 2 of the last 5 years, it's not taxable if sold while she's alive. After death, the estate takes the property at its current value. If sold for that value, there's no income to the estate. However, as indicated, you should contact an attorney/accountant in your jurisdiction for full advice.

 

[NewlyRetired]

Thank you for the information every one.

 

[BobbyLayne]

This. Generally, if she's lived there for 2 of the last 5 years, it's not taxable if sold while she's alive. After death, the estate takes the property at its current value. If sold for that value, there's no income to the estate. However, as indicated, you should contact an attorney/accountant in your jurisdiction for full advice.

To expand on this:

While 2 out of 5 rule is correct, only the first $250K in LTCG is exempt (500K if married.)

If the house is sold before she passes, you have to use the original cost basis (purchase price + capital improvements.) Any CG tax would be paid when the estate files the individuals final tax return (e.g., due 4/15/21 if the events occurred during 2020.)

If it’s sold after she passes, what happens first is title would pass to her heirs at a stepped up basis - the appraised current market value. That’s generally a huge advantage in many cases because the CG is effectively wiped out because you would be replacing her original basis with today’s market value.