Imagine carefully looking both ways before crossing a street, making sure it’s safe—only to be blindsided by a speeding car. That’s how some people feel about inheriting property—what seems like a financial blessing can come with unexpected tax obligations.
With the aging baby boomer generation, inheritances are becoming increasingly
common. A 2022 survey found that over 60% of U.S. households have either received, will receive, or plan to leave an inheritance—up significantly from 46% in 2018. The trend is expected to continue, with an estimated $84.4 trillion in assets projected to be passed down by 2045, according to Cerulli Associates.
While inheriting a property can be a financial advantage, it’s essential to understand the tax implications associated with it—especially in San Diego, California.
Tax Considerations in California
The good news for San Diego residents is that California does not impose a state inheritance tax, estate tax, or gift tax. However, some federal taxes may still apply.
Here are three key federal tax considerations:
1. Federal Estate Tax Return
The federal estate tax applies to property transfers after death, but it only affects estates exceeding a specific threshold. Currently, the federal estate tax exemption stands at $12.06 million per individual or $24.12 million for a married couple. If the total value of the estate, including inherited property, falls below these thresholds, no federal estate tax is owed.
2. Federal Estate or Trust Income Tax
If the inherited property generates income (such as rental earnings), it may be subject to federal estate or trust income tax. Fortunately, deductible expenses like maintenance costs or mortgage interest payments can help offset this tax burden.
3. Capital Gains Tax & Individual Income Taxes
If you decide to sell an inherited property, capital gains tax may apply to any increase in value after the date of inheritance. However, thanks to the “step-up in basis” rule, you only owe taxes on appreciation that occurs after you inherit the property, not the total gain since the original purchase.
Consult Local San Diego Tax Experts
Understanding the tax landscape surrounding inherited property can be complicated, especially when factoring in potential capital gains. This is why consulting a San Diego-based tax professional is essential. A knowledgeable accountant can provide guidance on tax-saving strategies such as:
- Selling the property quickly to reduce capital gains liability.
- Using the inherited home as your primary residence.
- Deducting selling costs from your taxable gains.
Looking to Sell Your Inherited Property?
If you’ve inherited a home in San Diego, you may be considering your options—particularly selling for fast cash to avoid additional taxes. This can be a practical choice, especially if the property requires extensive repairs, making it unsuitable as a primary residence.
Listing with a realtor is one option, but it can take time, and there’s no guarantee of a quick sale. A faster alternative is working with a reputable cash home buyer.
Why Choose XLNC Exotic Homes?
San Diego has no shortage of home buyers, but it’s crucial to work with a trustworthy and established company to avoid scams. XLNC Exotic Homes offers a hassle-free way to sell your inherited property quickly, providing:
- A free instant cash offer with no obligations.
- A transparent, fair evaluation based on the current market value.
- Fast closings, often within days.
Whether you’re looking to understand the value of your inherited property or are ready to sell immediately, XLNC Exotic Homes is here to help. Contact us today for a free instant cash offer and take the first step toward a stress-free property sale.
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