My wife and our two girls each inherited a share of a condo sale from their deceased uncle. The condo was sold 6 months after his death and the proceeds were then split between nieces and nephews, all sharing equally of approximately $20,000 a piece. Will taxes have to be paid on this inheritance? We live in Tennessee.
The BIDaWIZ Team's Answer:
As explained In IRS Publication 551, the inherited property generally has a cost basis equal to the appraised value of the asset on the date of the uncle's death. The estate/inheritance tax return should indicate the assessed value at the time of death. Then, since the property was sold 6 months later, the sale price will indicate whether or not it was sold for a capital gain or loss. If it was sold for a capital gain, that would be taxable income to your wife and daughters. In terms of the federal estate tax and Tennessee inheritance tax which is separate from capital gains tax, there is currently a $5.12 million federal estate tax exemption and $1 million inheritance tax exemption for Tennessee in 2012. Thus, it us unlikely that your wife and daughters would be subject to those taxes. But, they could be subject to long-term capital gains tax depending on whether the property was sold at a capital gain or loss position. You can calculate this by subtracting their proceeds from their share of the appraised value at the time of death.