Houses and Estate Income Taxes

Video

Introduction

Hi folks, it’s Andy Stautz at Stautz Law. I am back today for another talk about estate administration (in this case). We are talking about houses and their effect on estate income taxes. This is timely because it is tax season when I’m recording this, which is mid-February.  

So one thing we’ll discuss if you do a probate administration with me (and just as a background talk about Indiana law for anyone who’s interested), a house is a common item of estate property. A lot of the times we’re opening a probate estate specifically because there’s a house to deal with, to be sold.  

Estate Income Tax

Also, estates, just like people, owe income taxes. [The return form for estate income taxes is IRS Form 1041.] So if an estate has income, it has to pay taxes on that income. This is separate from the federal estate tax. Okay, this is like, this is an income tax.  

And so at this time of year, I’m advising probate clients and, you know, saying, okay, well, what do we do about estate income taxes? And if you had a house in the estate and you’ve sold it, It’s like, okay, well, what are the tax consequences of that?  

Common Scenario: No Income on House Sale

And the basic answer is, oftentimes it’s a wash. Because, as we’ve talked about in a previous video, probate assets get a step up in basis. So that means when the estate gets the house, the person dies, the house goes from that person to their estate, the house comes into the estate with a basis of whatever the date of death value was. Therefore, if you sell the house a couple months later as part of an estate administration, you basically have a 0 gain.  

Let’s say a person dies with a house, it’s worth $200,000, you sell it a month later for $200,000, You’ve got a $200,000 basis and a $200,000 sale price and 0 capital gains and 0 income, which is nice.  

So oftentimes I’m able to say, don’t worry about it. That’s kind of the point of this talk is you need to think, you know, when you’re doing an estate administration, you need to make sure that you’re keeping up with taxes. It’s part of the personal representative’s duty.  

Conclusion: General Information vs. Specific Advice

This is something if you’ve got an estate with me, we’ll definitely be talking about. But as a general informational talk about Indiana law, it’s okay, keep that in mind. Think about how your estate as an entity generates income or doesn’t on its own and make sure you pay the taxes that are owed because that’s part of the duty. So just a quick talk, quick note about that one. I’m not primarily a tax advisor. But this is just a little item of law that comes up over and over and was worth a general overview. If you need specific advice, you need to talk to me specifically, you need to talk to me and not just depend on informational videos. If you need legal advice, you’re on my website. Give me a call, give me an e-mail and we’ll talk about, you know, you in particular.  

Hope you enjoyed it. Thanks and bye.