Tax Dictionary – Inheritance Tax

IRS Definition

To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

  • The fair market value (FMV) of the property on the date of the decedent’s death.
  • The FMV of the property on the alternate valuation date if the executor of the estate chooses to use the alternate valuation.

If you sell the property for more than your basis, you have a taxable gain.

More from H&R Block

What is often referred to as an inheritance tax is the tax you pay as the beneficiary of property (real estate, stocks, etc.) that you inherited and then you sell. You pay taxes on the difference in the basis (the value of the property on the date the individual died) and the price you get when you sell the property. Example: You inherit 100 shares of stock valued at $50 per share on the day the person died. You sell the stock for $55 per share. $5,500-$5,000 = $500. You will pay tax on the $500 difference.

Note: Some people use the term inheritance tax when they are really talking about the estate tax. Estate tax is a tax paid by the estate (not the beneficiary) on estates valued over $5,490,000 (for 2017).

Learn how to handle an IRS audit.

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