Do we pay taxes on my mothers estate?

by G. Scott Haislet, CPA, Esq.

My mother had a revocable trust and left her house to her four children. We have sold the house and split the money. Do we need to pay taxes on this inheritance?

There is no income tax to the recipients of a "gift," including an inheritance.

There may be an estate tax payable by your mother's estate, however. Assuming mother died in 2013, the federal estate tax rules provide that the first $5.25 million of a decedent's net estate will pass to non-spouse beneficiaries without estate tax (there is no California estate tax). "Net estate" means the value of all mother's property at death (whether held individually or through a revocable trust at her death) minus her mortgages and debts as of her death, funeral expenses, certain administrative expenses like probate fees paid to an attorney, and certain final medical expenses.

There may be a tax on the gain in value of the property from the date of death to the date of sale. For example, if the house was worth $600,000 at date of death, then was sold for $660,000 (net of real estate fees and closing expense), there will be a taxable gain of $60,000 that triggers income tax. This type of situation is atypical if the house is sold shortly after the death of the decedent, because any gain in value from date of death to date of sale is usually offset by the real estate commission.

G. Scott Haislet, CPA, Esq. is a tax adviser, estate planner and real estate attorney.

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