An inherited property in Connecticut can be a beautiful gift, an opportunity to improve your life but there are emotions involved in the process. You are dealing with the loss of a loved one, and you have to deal with legal complications and family issues.
Inheriting a house in Connecticut is not straightforward. Unless you inherit a free & clear house and you are the only heir and the property doesn’t have to go through the probate. However, in most cases, the house will go through the probate which is a lengthy and time-consuming process. You might have to pay the pending mortgage, loan bills, and taxes before you decide what to do with the house. Also, most of the time, multiple heirs are involved, and you alone can’t decide about the property. These factors can add to the stress level and instead of being a gift, inheriting a house can feel like a hassle.
1. Understanding the Tax Consequences of Inheriting a House
You don’t have to pay significant amounts for the inheritance tax. Unless the property value exceeds millions, you don’t have to worry about the taxes. You will surely deal with tax forms, but you don’t have to pay a massive tax bill. The state of Connecticut doesn’t impose an inheritance tax. There is the estate tax which is due if the minimum value of the estate is $2.6 million. You can contact a reputable real estate attorney for further guidance or give us a call.
2. What is the Probate Process in Connecticut?
You can avail a simplified process, but it applies only if the value of the entire estate is less than $40,000. If the value of the estate doesn’t exceed the $40k mark, then the beneficiaries can inherit the assets by signing a simple affidavit. You can accept the ownership of your gifts without involving the court. However, if the value of the estate is more than $40k, then it is necessary to probate the estate. Consult a probate attorney, review your assets, submit the will of the deceased and begin the probate.
At the end of the probate, you’ll pay all taxes, loans, court fees and then the cash or assets will be distributed among beneficiaries. If the estate involves a house, then it is necessary that the house is jointly possessed by the beneficiaries or is sold before the probate process is complete. In most cases, it is convenient to sell the inherited house in Connecticut so that everyone can get their share of the gift and move on with his or her lives.
3. Read the Tax-basis and Capital Gains Taxes
The tax base of your home is the price you paid at the time of purchase. However, the tax basis for an inherited home in Connecticut is different.
For tax calculations, the tax basis is the value of the home at the time of the death of the deceased person. For example, the original price of the house might be $98,000, but in 2018, the same house might be worth $398,000. So, if the tax basis is $398,000, you don’t have to pay the tax if you sell the house shortly after inheriting it.
The same thing happens with the Capital Gains Taxes. Since the basis is $398,000 and there is no significant price change (if you sell the house within one year of inheriting it) so, you won’t pay the Capital Gains taxes which can be a huge saving point for the seller. However, as you might already know, the Capital Gains exemption applies only if the home is your primary residence. The exclusion will apply if you live in the house for two years.
Since you are selling an inherited house, you don’t have to live in the house for two years. The stepped up in basis rule protects you here, and you won’t be taxed on the base value of the property.
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