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Inherited property and tax liability

Beneficiaries in Michigan who received an inheritance in 2017 may be facing this tax season with trepidation. Will they owe taxes on what they inherited? In most cases, the answer is no. Michigan does not have an inheritance tax, so receiving assets as a result of a descendant's death does not result in tax liability. However, if inherited property was sold, there may be taxes owed depending on the situation.

According to the IRS, taxes are owed on sold inherited property only if a profit was made. The basis of the property needs to be determined first, and this amount is typically the fair market value on the date of death of the descendant. If the sale price is higher, the seller is responsible to pay capital gain taxes on the difference. The executor of the trust typically has information related to the FMV and is required to provide this to the beneficiary in certain circumstances. Taxable gains, or losses, are reported on tax forms 8949 and 1040 Schedule D.

Forbes offers some advice for those who may become beneficiaries of property and intend to sell it in the future. Make sure bills, such as utilities, mortgage payments, homeowners insurance and property taxes, are kept current. As far as setting a price, research comparable properties in the area and set a similar price to avoid owing capital gain taxes. Keep in mind, sellers are typically responsible for paying transfer taxes, commission fees and other costs associated with closing, along with paying the mortgage balance.

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Bebout, Potere, Cox & Bennion, P.C.
821 North Main Street
Rochester, MI 48307

Phone: 248-805-1959
Fax: 248-651-8923
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