As people go about their lives they grow up, embark on a career, raise a family and throughout all of this amass assets to bequeath to the next generation. It can become a legacy that one hopes will benefit the next and future generations. Real estate is often part of a person’s estate. While inheriting real estate can be rewarding in California, there are rules that must be followed and tax implications to be aware of. Following the rules and being aware of the tax laws can go a long way toward protecting assets.
The first thing to be aware of regarding taxes is that the income tax returns for the deceased, both state and local, must be filed. Depending on the value of the estate, a federal estate tax return may be due as well. It’s important to be aware of the deadlines for these returns as failure to meet them could result in fines and penalties.
If there is a mortgage on the property, it would be beneficial to be aware of the balance due as this will help determine the amount that a person may realize as a result of the sale. When the property is sold, capital gains taxes may be due. While there is a capital gains tax exclusion that can be used, it is not applicable on inherited property unless the person inheriting the property has lived in the property. If a person wishes to take advantage of the exclusion, he or she must reside in the home for two years prior to the sale.
Inheriting real estate can be a complex undertaking in California. Consulting with an experienced estate planning attorney can help one ensure that the proper measures are taken to provide for a smooth transition. This will help in protecting assets that were passed on from the deceased and allow one to successfully carry out the deceased’s final wishes.