Taxes and Costs When You Sell an Inherited Home in Texas

One of the biggest worries families bring to us is taxes. "Will we owe a fortune if we sell Mom's house?" The good news is that for many families in Texas, the tax picture is better than they feared. Here's what to know, and what to ask your CPA.

Texas has no inheritance tax or state income tax

Texas doesn't tax an inheritance, and it has no state income tax. So the state won't take a cut when you inherit the house or when you sell it. Federal rules still apply, as explained below.

The "stepped-up basis" usually helps a lot

When you inherit a home, its tax value for federal capital gains purposes generally resets to what it was worth on the date of death. That's called a stepped-up basis.

Here's why it matters. Say your parents bought the house for $90,000 decades ago, and it was worth $400,000 when they passed. If the family sells it for $410,000, the gain is generally measured from $400,000, not from $90,000. In this example, that's roughly a $10,000 gain before selling costs, not $320,000.

That's why it helps to document the home's value at the date of death. Your CPA or attorney may recommend a professional appraisal for this.

Federal estate tax affects very few families

Federal estate tax applies only to very large estates, well above what most families leave. Your CPA can confirm whether it applies to yours.

Typical costs of selling

Even when taxes are small, plan for the normal costs of a sale:

• Real estate commission — negotiable, and discussed up front
• Owner's title policy — in Texas, customarily paid by the seller
• Property taxes — prorated to the closing date
• Mortgage or lien payoff — if there's still a loan on the home
• Repairs or prep — only what makes sense for your plan
• Holding costs — utilities, insurance, lawn care and HOA dues while the home is on the market

A Realtor can give you an estimated net sheet showing what the family is likely to walk away with.

Keep every receipt

Save records of everything the estate spends on the house — repairs, utilities, insurance, cleanout and selling costs. Your attorney may need them for the estate's accounting, and your CPA may be able to use some of them.

Questions to ask your CPA

• What was the home's value on the date of death, and how should we document it?
• Will selling create any gain, and who reports it — the estate or the heirs?
• Which of our expenses can be used to reduce any gain?
• Does the timing of the sale matter for our situation?

Know your numbers before you decide

Southern Luxe Group can give you a free value estimate and an estimated net sheet for an inherited home in Austin, Round Rock, Georgetown, Cedar Park or Bryan–College Station. Get a no-pressure plan for the property or call Trina at (512) 629-9050.

This article is general information, not tax or legal advice. Tax rules change and every estate is different, so please talk to a CPA and a Texas probate attorney about your situation.