Inheriting a vacation house is popular among beneficiaries. In fact, it can even prompt some estate planning conflict if you’ve named one family member and haven’t named another. However, it may not be practical for the beneficiary to keep this property particularly for tax reasons after the primary owner passes away.
When inheriting a piece of property, it is important that your beneficiaries be aware of all the potential implications, including whether or not it is an existing mortgage on a property, whether there are any other owners of the real estate and tax implications.
If your loved ones inherit your vacation home and decide not to keep the property, it is better to sell it sooner rather than later. This is because property such as stocks or houses can typically appreciate in value, which means that it is worth more than the original owner paid when they first purchased it. This could generate a significant capital gains tax situation.
When property is inherited by a beneficiary, the property’s tax basis is stepped up, meaning that the basis would be the property’s value on the date that the person who owned it passed away. Another potential challenge to consider is whether or not there are state laws regarding the property’s existence in a different state from the resident state of the new property owner.
Selling real estate and moving to a new state can trigger some tax issues in certain states. Make sure that you schedule a consultation with an attorney to fully understand the possible implications.