One of the questions that comes up frequently when someone passes away: what taxes will I have to pay? And more specifically, if I sell the person’s house, what taxes do we have to pay?

First, it should be noted that any taxes that are applicable are actually paid by the estate: as in, out of the property that the decedent (the person who died) owned.

That said, in terms of this question, there are two types of applicable taxes: capital gains and property.

Capital Gains Taxes: This is a type of income tax; it is state and federal. Capital gain refers to the amount of money that your investment earns. If you sell that investment for more than you bought it for, you have to pay capital gains taxes. For example, if you buy a house for $1 million and it increases in value to $5 million, and you sell it, then you have to pay taxes on that increase-in-value of $4 million. BUT this isn’t applicable the same way when someone dies. When someone dies, the value of the investment gets “stepped up” to the value as of the date of death. So, if someone buys a house for $1 million and it increase in value to $5 million, and they die… the house is now worth $5 million if someone sells it at that point in time. There is no capital gain. If someone holds on to the property and doesn’t sell it, the value of the house still “stepped up” (started over) at $5 million.

So: if you sell the house of the person who died, you will only pay capital gains taxes from the date of the death to the date of the sale. And if the sale happens within six months of the date of the death, there’s usually considered to be no gain and therefore no capital gains taxes are due.

Property Tax: Property tax is a county tax that is reassessed when there’s a change in ownership. When someone dies, there’s a change in ownership because someone who has died cannot own anything. Property taxes are reassessed as of that date to present day value. Usually, this means that a supplemental tax bill will be sent from the county months (or sometimes years) after the property tax bill is due. However, if you sell someone’s house, there’s no additional property tax due! Once the house is sold, the estate is no longer responsible for paying the property tax.

There are some exceptions to each of these types of taxes and what happens in you particular circumstances. If you have questions, please contact me. I also provide complimentary consultations for probate and trust administrations when someone has passed away. It’s really hard time when someone dies; I am sensitive to all that you’re balancing and will talk you through everything with empathy and compassion.