Q. I inherited a modest New Jersey home in 2013, which we turned into an LLC and rented out. I own it with my cousin and we are thinking of selling it in January 2022. What should we expect for capital gains? The home is only worth about $375,000.
— Beneficiary
A. It’s good to know what you’re getting into before you sell the home.
When you acquire inherited property, your tax basis is generally the fair market value on the decedent’s date of death.
For example, if the value of the property in 2013 on the date you inherited it was $200,000, that would have been the cost basis you used for the rental property, said Gail Rosen, a Martinsville-based certified public accountant.
Continuing with this example, the $200,000 value would have been used to determine the cost basis and calculate the depreciation expense amount deducted every year that you rented out the property, from 2013 to date, she said.
“Again, using this example, when you sell the property, your capital gain would equal the sales price of $375,000 less the $200,000 cost basis less depreciation to date plus any improvements you made to the property going forward,” Rosen said. “You would owe federal and New Jersey tax on the net gain from this computation.”
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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