Sander Scott, a realtor, explains how inherited property gets a stepped-up basis that can save you thousands in capital gains taxes. You need an appraisal within about six months of inheriting to lock in the new value. Skip this step and you could owe taxes on decades of appreciation.
Capital gains and inheriting property. It's really important that you understand when you're set to inherit property what implications are out there related to taking advantage of what's called the stepped-up basis and the importance of getting an appraisal within 6 months of your benefactor's death. Things take time. And what I'm noticing more and more, I'm talking to a lot of clients who have inherited property from their folks, and more than 6 months goes by and they haven't gotten an appraisal to take advantage of the stepped-up basis. And this can cost them tens of thousands of dollars needlessly, needlessly. So get an appraisal right away upon the death of your folks if you're inheriting property, okay? And here's why. Let's say— and I see this a lot in waterfront properties that have been in the family for generations— you know, they may have paid a ridiculously low amount of money for the summer cottage, and it's been in the family for 100 years. So they bought this home for like a couple hundred bucks, and now it's worth $1 million, and if you don't get it appraised at key points, then you are going to have to pay— unless it's your personal residence, but in this case it wouldn't be because you're inheriting it— you're gonna have to pay those capital gains taxes. So what is a stepped-up basis? Well, first of all, let's talk about what a basis is. The basis is the price paid for the home plus any cost of improvements that have been made over time. So if you're inheriting it from your folks, you kind of hope that they kept really good records of all the renovations or all the improvements that they've made. Chances are that they probably haven't done that, and all that doesn't matter as long as you get an appraisal done right away, because then you can take advantage of that stepped-up basis. So what does that mean? So let's say your parents bought this home for $50,000 40 years ago and now it's worth a half a million bucks. It's worth $500,000. If you get an appraisal done right away, then now your basis is— and let's say the appraisal comes in at $500,000— now your basis is $500,000. If you don't get the appraisal, your basis is that original price plus any improvements. So in this case, let's say $50,000. So if you don't get the appraisal done within a reasonable period of time, which is about 6 months according to the IRS, now you could face— you sell your folks' home, you're facing a capital gains implication of having to pay on a gain of $450,000, 20% of $450,000. That's nothing to shake a stick at, you know, that's a significant amount of money that could easily be avoided by paying the $500-$600 for an appraiser to come appraise it and then you take advantage of that stepped-up basis. So I just cannot stress this enough. And also in the case of family cottages that maybe are owned by multiple people. I'm working with a family right now where 3 different parties own it. Okay, two aunts and a niece, and I, I asked the question, hey, so the niece inherited it from one of the sisters who passed away, and I said, hey, did you get an appraisal done when this one sister passed away? Because then you could get the stepped-up basis for at least one-third of the total value. So it's really important whether When any owner dies and leaves the property to an heir, get an appraisal done right now. That should be a trigger. Get the appraisal scheduled, get it done. There's no sense— we pay a lot, you pay a lot in taxes, and you pay your fair share. And the IRS has said you don't have to pay. This is not a part of your fair share if you know the rules. And know what to do. So I'm telling you, I'm not a CPA, I'm not a tax advisor, so I would encourage you to talk to a tax advisor right away and to get the, to get the detail on all of this. But I'm just here to raise awareness around this because I just see, just see an awful lot of people that are going to face tens of thousands of dollars in taxes needlessly because they didn't know to just go get that appraisal. So appraisals are cheap, taxes are expensive. Think about it. All right, I'm Sander Scott, your full-service realtor. We'll see you soon.
