29 May Will I owe taxes on this inheritance?

Q. My parents lived in New Jersey until they died. My brother also lives in New Jersey. I do not. When my parents died, per their will, the executor was directed to sell the home and split the proceeds between me and my brother. My brother plans to buy the house. Do I have any responsibility to pay any state fees or taxes?
— Son

A. We’re sorry to hear about your parents.

Let’s go through the tax scenarios.

As a Class A beneficiary, which includes a spouse, civil union or domestic partner, parent, grandparent, child or any descendant, or step-child but not step-grandchild, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Your parents estate may not face an estate tax, either.

“The New Jersey estate tax was eliminated effective Jan. 1, 2018,” Romania said. “Therefore, assuming your parents passed on or after Jan. 1, 2018, there is no New Jersey estate tax to pay.”

She said if they passed in 2017, there may be New Jersey estate tax but only if the taxable estate exceeded the $2 million exemption.

With respect to income tax, Romania said, the estate as the seller of the home probably won’t incur much tax, if any, because the estate obtained a step-up in basis upon your parents’ death.

“That is to say the basis is the date of death value, which is likely approximately the same as the selling price less selling expenses, and thus little or no gain will likely be incurred on which to pay tax,” she said.

New Jersey does have a realty transfer fee which is imposed upon the seller of real estate – here, the estate – and calculated based upon the sales price or other consideration paid.

“There is a statutory exception to such fee when there is a transfer of real estate by an executor to a devisee or heir to effect distribution of the decedent’s estate in accordance with the provisions of the decedent’s will,” she said. “There is no exception where the real estate is sold to a third party and the proceeds are distributed to the devisees or heirs.”

But in this case, Romania said, “a devisee” is purchasing his share in addition to another devisee’s share in the real estate. She said depending on how the transaction is structured, it may be possible to reduce the realty transfer fee incurred.

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This story was originally published on May 29, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.