How Much Tax Do I Pay When I Sell an Inherited House?
In California, you won’t pay state inheritance or estate tax when selling inherited property. But, you might owe federal capital gains tax if you sell for more than the “stepped-up basis”. The fair market value at the date of the previous owner’s death. For example, if you inherit a home valued at $900,000 (its market value at the time of the original owner’s passing) and sell it for $925,000, you only pay capital gains taxes on the $25,000 profit. If you sell soon after inheriting, your taxable gain may be minimal or zero.
What Additional local taxes apply to an Inherited Home?
You may owe standard Los Angeles county property taxes if you hold the home for more than a brief period before selling. If you sell the property within the same tax year (or very soon after inheriting) you may pay only a small prorated portion of the annual property tax bill. If you hold it past the annual tax billing cycle (even a few months), you are subject to the full annual property taxes for each year you own the home… even if you sell it partway through the following year.
Inherited a home in Los Angeles County and need to sell it?
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Do I Have to Report the Sale of an Inherited Home to the IRS?
Yes, the sale of an inherited property is reportable to the IRS. Heirs should complete Schedule D (Form 1040) and Form 8949 to declare the sale and correctly apply the stepped-up basis. If siblings or multiple heirs are involved, each person only claims their share of the gain or loss.
How Long Do You Have to Sell an Inherited Property?
There is no statewide deadline to sell an inherited home, but if probate is required, the whole process may last between 9 to 18 months or more. The actual time to sell can be much shorter if the property is held in a trust or can be sold “as-is” under the California Independent Administration of Estates Act (IAEA). For tax or administrative ease, it’s common to sell inherited homes within a year or two, but legal timelines are mainly driven by the probate or trust administration process.
Is It Better to Keep an Inherited House or Sell It?
This decision depends on your personal goals:
- Sell if you don’t want property management headaches, the heirs can’t agree on holding the property, or you want to capture the house’s current market value with minimal tax liability.
- Keep if you plan to use the home as a primary residence (which can lock in the tax base under Proposition 19, in very limited cases), if it’s appreciating, or if the family desires a long-term asset.
Financial and emotional factors: If you keep the house and live in it for at least two of five years, you may qualify for the federal $250,000 (single) or $500,000 (married) home sale exclusion for future capital gains, which can further reduce taxes if you do eventually sell. On the other hand, ongoing property taxes and maintenance costs often push folks to sell.
How to Sell an Inherited Home
- Establish your authority: The estate executor or administrator must get legal authority from probate court (unless the house is in a trust).
- Clear title issues: Ensure the home’s title is clean for transfer. Pay off any remaining debts or liens.
- Appraisal & valuation: California probate requires a certified appraisal, which sets a minimum sale price (often can’t be less than 90% of the appraised value).
- Choose how to sell:
- Traditional listing: Prepares home for sale, markets to buyers, stages for highest price.
- Sell “as-is”: Especially if the estate lacks repair funds or heirs want a quick close. This is much faster, especially with cash offers.
- Direct sale to investor: Quickest route, but typically yields lower sale price.
- Close the sale: Proceeds distributed to heirs via estate or trust after expenses and debts.
How Can a Realtor Help Sell an Inherited Property?
A seasoned Los Angeles Realtor guides probate/trust sales. They can navigate local regulations, probate courts, and required disclosures. Good Realtors help with professional valuation and local pricing. They ensure accurate pricing for fair market value and maximum returns in your specific neighborhood.
Realtors have marketing and staging expertise. They can position an inherited home for maximum exposure. Local agents know how to reach buyers specifically interested in homes in West LA’s varied neighborhoods. They can negotiation and coordination including offers, buyer requests, and complex family dynamics. Once everything is ready to go they’ll streamline the sale. You won’t need to worry about handling paperwork, disclosures, title issues, or closing coordination. Heirs help to minimize legal and financial risks.
Probate Timeline for Selling Inherited Property
Probate properties: If the property is subject to probate, expect the process to last 9-18 months on average from start to finish. You cannot sell until you’ve received court approval or authority under statutes such as the California Independent Administration of Estates Act (IAEA).
- Initial petition: 1–3 months after death.
- Court approval & letters: 2–4 months to get court authority after petition filed.
- Minimum holding period: No set limit, but estate administrators generally aim to sell within 1–2 years to avoid excess estate taxes or costs.
- Notice of Sale: Minimum of 15 days’ notice before private sale is required under CA law.
Trust-held properties: If in a trust, sale can generally occur immediately after trustees confirm authority, sometimes within a few weeks to several months.
Deadlines and Legal Constraints
- Tax deadlines: Capital gains and stepped-up basis calculations only apply for sales after date of death. Real estate transfer taxes are due at close of escrow, and property tax adjustments take effect at the next fiscal year.
- Probate court constraints: Sale must usually occur at 90% or above court-appraised value if part of probate.
- IRS reporting: Must report the sale on tax returns in the year the transaction closes, using Form 8949 and Schedule D.
Practical Considerations
- No mandatory CA “forced sale” deadline: While creditors may pressure quicker sales, the law does not require estates/beneficiaries to sell within a set period.
- Financial impacts: Probate that stretches past two years can trigger administrative issues, delayed inheritance, and higher estate costs.
- Partition action: If multiple heirs disagree, a lawsuit may force a sale, but these legal timelines can add 3–9 months longer to the disposition.
Pro Tips for Los Angeles Heirs
Most inherited homes in California sell within 1–2 years. Probate-related sales average about 12 months, but trust sales can finish in weeks. There is no uniform legal deadline, but best practice is to resolve the process within a reasonable period to avoid tax and legal complications. The fastest, most profitable inherited home sales in West LA occur when heirs work with a local specialist in probate and trust properties, document the stepped-up basis, and weigh the emotional and financial pros and cons before proceeding.