Selling a home or other real estate you inherited in California can provide major financial value, but the sale may have tax consequences.
The inheritance itself is generally not treated as taxable income in California. However, selling the property can create a taxable gain depending on its value when you inherited it and the price you later receive.
What taxes could apply?
Understanding the property’s tax basis is an important first step. For inherited property, the basis is usually its fair market value on the date the previous owner died. This adjustment can reduce the amount of gain subject to tax when the property is sold.
For example, if a home was worth $600,000 when you inherited it and you later sold it for $650,000, the potential gain would be based on the increase from the inherited value, subject to applicable adjustments and rules.
Therefore, when inherited property is sold for more than its adjusted basis, the gain may be subject to capital gains taxation. California taxes capital gains as income, so the sale can have both federal and California income-tax consequences. Inherited property that qualifies as a capital asset is treated as long-term property for federal tax purposes, regardless of how long the beneficiary actually owned it.
Other factors can affect the final tax calculation, including:
- Improvements made to the property
- Selling expenses
- Depreciation from a rental property
- Whether the property was used as a residence or rental
California may also require withholding in certain real estate transactions. Because the tax treatment can depend on the property’s history and the estate’s circumstances, beneficiaries should review the basis and potential tax obligations before completing a sale. Consulting a qualified tax professional or legal representative can help identify issues before they become costly problems.
