If you sell your house and make a profit, you must pay capital gains tax—so does the same rule apply when you inherit a house from a deceased relative? The truth is that inheriting property can be taxing—both emotionally and financially.
The amount you must pay when you sell an inherited property can indeed take a toll on your bottom line. But before we discuss the details, let’s take a closer look at what capital gains tax actually is.
If you inherit a house, do you pay capital gains tax?
Typically when you sell a home for more than you paid for it, you have to pay capital gains tax. It can range from zero to 20%, depending on your income. Your capital gain on your home sale is determined by subtracting the purchase price from the home’s current value. And you could be eligible for an exclusion up to $250,000 ($500,000 for a married couple) if you’ve lived in the property for at least two of the previous five years.