Inherited house capital gains? missouri?

Question

hi, i inherited a house its 3 years old worth approx 240,000 and paid off. i have lived here a year now. i want to sell it and pay off the 50,000 mortgage i took out on it and buy a more reasonably sized house with smaller tax payments and pocket the remainder. problem is im not sure how capital gains works and i have heard you cannot sell a house just to buy a cheaper one... any help or advice would be greatly appreciated

Answer 1

Your "cost" for tax purposes is what it was worth on the date of death of the person who left it too you. Subtract that from the sale price minus sales costs to determine profit or loss.  You have not been there long enough to take the home sale exclusion.

Answer 2

For your cost basis of the house read:

http://taxipay.blogspot.com/2008/02/tax-...  

Also read about sale of main home: http://taxipay.blogspot.com/2008/03/prof...

Answer 3

Whether you pay tax or not depends on the selling price and the value of the house when you inherited it.

If the selling price (net of commission) is greater than the value of the house when you inherited it, the difference is taxed as capital gains.  The maximum tax you will pay on this amount is 15%.  When you file your tax return, this information is entered on Schedule D.

Since you did not live in the house for two years, you are not eligible for the exclusion of $250,000.   If you are going to have a large gain on the house, you might consider staying in the house two years in order to qualify for the exclusion, which means you will pay no tax on the gain up to $250,000 (or $500,000 if married).

There is no tax restriction on selling the house and trading down to a smaller house.