Important Estate and Inheritance Considerations When Receiving Inherited Property
When loved ones pass away, they often give houses and other types of property to their children or other beneficiaries. While home inheritance is beneficial for most recipients, others may experience financial difficulty due to the estate or inheritance taxes. Therefore, anyone receiving a house or property or both from a loved one needs to understand essential factors that dictate their taxes.
Taxes Depend on When You Receive the Property
Inheriting a large house or piece of property from a loved one will trigger a variety of taxes. However, the type of charges to pay will depend on the time of the property distribution. For example, estate taxes kick in if the property is given to beneficiaries before the owner of the property dies.
By contrast, inheritance taxes go into effect if the house and property distribute after a person dies. While states often set inheritance and estate taxes at similar rates, the exact amounts will vary. In fact, some states don't have inheritance taxes at all. Therefore, anyone receiving a house or piece of property in this circumstance needs to do their research carefully to ensure they don't pay too much money.
Deductions May Help Manage Estate Taxes
Be sure to consider deductions on estate and inheritance taxes before paying a single dime. For example, married beneficiaries can benefit from marital deductions. In this instance, the property must pass to the spouse after the recipient passes. The deduction amount will vary depending on the state in which the property is located.
Other deductions include any mortgages on the house, administration expenses acquired when distributing the estate, and any losses the beneficiary experiences while administering the estate. Maximize these deductions to ensure that estate and inheritance taxes aren't too heavy.
For example, the gross estate tax is the total of all of the taxes a person owes on a property before deductions. After the tax has been calculated, the deductions will be taken out of the gross estate to arrive at the net estate tax. The net estate tax is what the new owner will have to pay for the property.
Deductions include elements such as mortgages on the home, debt incurred by the previous homeowners, estate administration costs, and any other money paid to keep the property open. For example, the costs of operating a farm may also be included as a deduction. All of these deductions are very complex to understand and may require professional help to sort.
Retention Plans Are Important
After receiving a house or a property, beneficiaries need to decide if they plan on keeping or selling it. For example, owners may choose to move into the home after paying the estate taxes. In this instance, the owner must also pay property taxes and any other taxes associated with the house or property. All other costs, such as utilities, must be paid as well.
However, retained ownership without living in a house still requires the beneficiary to pay property taxes. The owner must also make sure that they pay all utility and insurance costs. That's why selling the property is often a wise decision for those who don't plan on living in the house. The selling price should more than compensate for any estate, inheritance, or property tax the beneficiary owes.
Tax Help Is Available
Anybody going through estate and inheritance tax situations understands their challenging nature. To fully grasp all the ins and outs as described above, seek professional help. So please contact Coffman, DeFries and Nothern, P.A., to learn more about these types of challenging cases. We can help you with your inheritance.