For many, inheriting a home can be a walking paradox to experience: overnight, you are left with property of sizable value you can use to improve your life while still also processing and mourning the loss of a loved one. For those who are pondering the next best move to make in this situation, understanding the tax consequences—such as the Pennsylvania inheritance tax—when selling an inherited property can absolutely inform your ultimate decision on how to handle the property itself. Thankfully, tax laws have been designed in such a way not to add additional burden upon the person inheriting the property. Typically, the financial consequences are less daunting than what you would expect, which is good news for you.

Calculation of basis

In order to better understand how you’ll be taxed when inheriting a home, you need to know how basis is calculated. In this case, basis refers to the asset cost for the purpose of the calculation of capital gains along with other taxes, including Pennsylvania inheritance tax. When a person dies, the value or basis of their property in Pittsburgh is increased to the market value as of the time of their death. For instance, if a person purchased a home 20 years ago for $25,000 but it was worth $100,000 at the time of their death, that property would be valued at the latter amount for the purpose of calculating capital gains taxes.

Taxation of gains/losses

Capital Gains or Losses

Capital gains or losses refer to what you earn from selling property that you use for either personal or investment purposes, such as houses, furniture, and many other things. If you decide to sell an inherited home in Pittsburgh, that sale is regarded as a capital gain or loss for the purpose of income tax, including considerations for Pennsylvania inheritance tax. In most cases, for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. However, regardless of how long the duration you have been in ownership of an inherited home, any gain or loss will still be treated as long-term capital gains for tax purposes.

Reporting the sale

Reporting the Sale of an Inherited Home in Pennsylvania for Tax Purposes

When selling an inherited home in Pennsylvania, one of the first steps you need to take is reporting the sale for income tax purposes. Under Pennsylvania law, the sale of an inherited property is subject to both federal income taxes and Pennsylvania state taxes. The first thing you’ll need to do is calculate your capital gain or loss. This is done by subtracting the “basis” (the value of the property at the time of inheritance) from the sale amount. If the sale price exceeds the basis, you’ll have a capital gain, which will be taxable. If it’s lower, you’ll experience a capital loss. You must report this amount on your federal tax return, as well as your Pennsylvania state tax return, as required by state law.

Understanding the Pennsylvania Probate Process

Before selling an inherited home in Pennsylvania, you’ll need to go through the probate process. This is a legal process where a Pennsylvania court ensures that the deceased’s estate is properly administered and the property is legally transferred. In Pennsylvania, probate is necessary to establish the legal ownership of the inherited property and to provide authorization for the sale. The probate court will review the deceased’s will (if there is one) and ensure that all heirs are properly identified. If you are named as the executor or administrator of the estate, you must file a petition with the court to request the authority to sell the property. If there are multiple heirs involved, you’ll need to come to an agreement on the sale and share the proceeds before moving forward.

Considering Pennsylvania Inheritance Tax

In Pennsylvania, the sale of an inherited home may also involve Pennsylvania inheritance tax. Unlike federal capital gains tax, the inheritance tax is applied when property is transferred to heirs. The tax rates vary depending on the relationship between the deceased and the inheritor. For example, spouses are exempt from paying inheritance tax, while children pay a rate of 4.5%. Siblings pay 12%, and other heirs may be taxed at a higher rate. It’s important to understand the inheritance tax obligations before selling an inherited property. The inheritance tax must typically be paid before the property is transferred to the heir’s name, and it’s crucial to resolve this issue with the Pennsylvania Department of Revenue before proceeding with the sale.

Considering the Tax Implications of Selling an Inherited Home

Once you have legal authorization to sell the inherited home, it’s important to consider the tax consequences. As mentioned earlier, any capital gains from the sale will be subject to federal tax. However, in Pennsylvania, there’s no state-level capital gains tax, but the state does apply a local earned income tax depending on your municipality. The federal tax on capital gains depends on how long you’ve held the property. Fortunately, any gain made from the sale of an inherited home is automatically considered a long-term capital gain, regardless of how long you actually held the property. This can be beneficial because long-term capital gains are taxed at a lower rate than short-term capital gains.

Expert Help for a Smooth and Legitimate Sale in Pennsylvania

Selling an inherited home in Pennsylvania, dealing with both state and federal taxes, and ensuring all legal processes are followed can be complicated. That’s why it’s essential to have local experts who are familiar with Pennsylvania law on your side. At We Buy Property, we specialize in helping homeowners in Pennsylvania navigate the probate process, inheritance tax issues, and the intricacies of the local real estate market. Our team is well-versed in PA laws and can help you make informed decisions that will ensure a smooth and legitimate sale of your inherited home.

Please note that we are not legal professionals, and it’s always a good idea to consult with your attorney for specific legal advice regarding your situation. However, feel free to give us a call if you’d like to discuss your options further. We’d be happy to assist you, answer any questions, and even help coordinate or guide you through the process if you need assistance with the sale or handling of your inherited property.

How we can help

Selling an inherited house can help relieve a significant burden. Additionally, selling the property to an investor offers a straightforward, simple, and fast process. If you have any questions or need guidance on how to proceed with selling your home in Pittsburgh, don’t hesitate to reach out to us. We’d be more than happy to assist you every step of the way.