Federal Estate Tax:

In the US, when an estate changes hands after a death, it becomes subject to an estate tax. This is a tax that applies to property transfers whether or not there is a will. For most cases this is not an issue; in the year 2016 the estate tax was for transfers of property over $5.45 million dollars to an individual. If a married couple inherits property, that amount doubles to $10.9 million. Note: These amounts have doubled for 2018 due to the recent tax overhaul bill passed in December 2018

Most people will not need to worry about Uncle Sam taking a bite out of their estate, but there are additional state taxes that may apply. In Massachusetts, you might owe up to 16% of the gross estate value if it is over $1 million (gross estate is the value of all property interests of the deceased at the time of his passing).

If you are a Massachusetts resident inheriting property it would be in your best interest to consult an estate planning attorney, or Certified Public Accountant (CPA) to ensure you can make the most of your inheritance.

Capital Gains Tax and Your Property:

Capital gains are any profits that you may receive from the sale of assets you have held where the sale of the asset exceeds that of the purchase price. This can apply to stocks, such as those Google shares you bought in the early 2000’s, or investment properties.

For example, Mr. and Mrs. Smith purchased a multi-family home in the 1980’s for $100,000 with the purpose of renting it for additional income. This year, they chose to sell and ended up fetching $500,000. Because their house gained value over time, it was a long-term capital gain of $400,000, and thus subject to a capital gains tax.

Capital gains taxes are assessed based on the annual income of the person(s) being taxed. Mr. and Mrs. Smith are subject to Long Term Capital Gains Tax since they held their property for over one year, a fortunate occurrence for them, since long-term capital gains tax is a lower rate than short-term capital gains. Here are the rates for long-term capital gains tax.

Filing status and annual income (2016) Long-term capital gain tax rate
Single Married, filing jointly
$0-$37,650 $0-$75,300 0%
$31,651-$415,050 $75,301-$466,950 15%
$415,051 and above $466,951 and above 20%

It is best to consult a trusted tax attorney or CPA when dealing with capital gains, as there are many ways to avoid a massive “sticker shock” when taxes come due.