Beneficiaries may need to pay out-of-pocket for ongoing expenses like property taxes, utilities, insurance and general upkeep. Also, the probate process is a matter of public record. This means that the details of your estate, including information about your home, become accessible to the public.
Cash is one of the best options to inherit because it is not considered taxable income by the IRA. Cash is also one of the most liquid assets, as you can use it immediately for anything.
A common question, and one where many taxpayers often make mistakes, is whether it is better to receive a home as a gift or as an inheritance. Generally, from a tax perspective, it is more advantageous to inherit a home rather than receive it as a gift before the owner's death.
It is usually better for your heirs to inherit real estate at your death rather than to receive it as a gift from you during your life. This is because it is tax efficient for the property to pass at death due to the “stepped up basis” for capital gains tax purposes.
If you deed property to a child, that's a gift of that property and there is no gift tax that the child would pay. The gift tax is not made by the recipient of a gift. It would only be paid by the giver.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
While California may not impose an inheritance tax or an estate tax, there are still taxes associated with selling an inherited property: Capital Gains Tax: Capital gains tax is applied on a stepped-up basis, meaning it's only relevant to any increase in the property's value after inheritance.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
“Cash is king when it comes to leaving an inheritance,” said Carbone. “It's the simplest asset to deal with in terms of a transfer.”
It depends on your personal circumstances. If you want to live in the home or use it as a rental property, keeping it obviously makes sense. If you don't want to do either — or if it needs significant work that you don't want to commit to — selling it will make more sense.
In this instance, if the home appreciates (rises in value) between when you inherited it and when you sell, you will be subject to capital gains tax on the difference. This is because the inherited home is now considered an investment property, even if you haven't sought to be a real estate investor.
The basis of property inherited from a decedent is generally one of the following: The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance. The maximum coverage for each FDIC-insured account is $250,000.
Your share of sales proceeds (generally reported on Form 1099-S Proceeds From Real Estate Transactions) from the sale of an inherited home should be reported on Schedule D (Form 1040) Capital Gains and Losses in the Investment Income section of TaxAct.
Some also worry that the home will be sold quickly, against their wishes. And there is good reason to be concerned. If you bequeath a house to an heir or heirs, they will have to make an immediate plan for home maintenance, mortgage payments (if necessary), utilities, property taxes, repairs and homeowners' insurance.
Keeping the property can preserve family connections, help you navigate California's competitive market, and allow for potential property value appreciation. Additionally, you'll enjoy the tax benefits of homeownership and the comfort of staying in a familiar neighborhood.
A: There are likely no taxes due if you gift instead of sell your home to your son. You could, in fact, avoid capital gains tax. Transferring the home to your son is considered a gift. Currently, you can gift up to the federal estate and gift tax exemption amount of $12.06 million.
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
If you choose to put your house in an irrevocable trust that names your children as the beneficiaries, the property will no longer be part of your estate when you die. By removing it, there will be no estate taxes charged in the transfer and the property will not be subject to Medicaid estate recovery.