The difference with inherited property, however, is that the IRS allows you to use what's known as a stepped-up basis for calculating capital gains tax liability. The step-up cost basis represents the value of the home when you inherit it versus its original purchase price.
The so-called “normal expenditure out of income” exemption lets savers give away unlimited sums of money without paying inheritance tax. In order to qualify, the gifts must come from income and form part of a regular pattern.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
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.
An inheritance tax is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary. There is no federal inheritance tax. Inherited assets may be taxed for residents of Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Immediately after receiving an inheritance, you should notify your local Social Security office.
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.
Every year you delay, your monthly retirement benefit increases (until age 70). One Social Security loophole allowed married individuals to begin receiving a spousal benefit at full retirement age, while letting their own retirement benefit grow. This was done by filing what is called a restricted application.
“The '10x your salary' rule of thumb that many people cite is based on the assumption that you'll save 15% of your annual income starting at age 25, stick to a financial plan that involves investing that money wisely, and retire at age 67,” said Mark Wise, president and CEO of Wise Financial, Northwestern Mutual.
A tax loophole is a provision or ambiguity in tax law that allows individuals and companies to lower their tax liability. Loopholes are legal and allow income or assets to be moved with the purpose of avoiding taxes.
In California, there is no state inheritance tax. This means that when you inherit assets from a deceased person, you do not owe any tax to the state of California on those inherited assets. This can simplify the process of inheriting property and other assets significantly.
Inherited properties can come with financial responsibilities such as existing mortgages, unpaid property taxes, maintenance costs, and insurance requirements. Be aware of hidden costs, including emergency repairs, property management fees, and legal expenses.
The trust fund loophole refers to the “stepped-up basis rule” in U.S. tax law. The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset.
If your spouse dies, do you get both Social Security benefits? You cannot claim your deceased spouse's benefits in addition to your own retirement benefits. Social Security only will pay one—survivor or retirement. If you qualify for both survivor and retirement benefits, you will receive whichever amount is higher.
A generous impulse could paradoxically result in the beneficiary being denied valuable benefits. That's because getting an inheritance can cause the Social Security Administration to reduce or stop SSI benefits. Also, not reporting an inheritance can lead to penalties and a benefit suspension of up to three years.
Without a trust, the inheritance you receive may count as extra income or assets that either disqualifies you from receiving government benefits, or results in you getting fewer benefits.
Law of Dominance
This is also called Mendel's first law of inheritance. According to the law of dominance, hybrid offspring will only inherit the dominant trait in the phenotype. The alleles that are suppressed are called the recessive traits while the alleles that determine the trait are known as the dominant traits.
For the inheritance process to begin, a will must be submitted to probate. The probate court reviews the will, authorizes an executor and legally transfers assets to beneficiaries as outlined. Before the transfer, the executor will settle any of the deceased's remaining debts.
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%.
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.
The straightforward answer is no, and there is no specific time limit on selling an inherited property. However, certain factors will influence the timeline of the sale process. Understanding these nuances is key to ensuring a smooth and compliant sale.