What taxes are due when I sell this inherited home?

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Q. I inherited my family home when my mother passed away in 2009. We have rented it out and we’ve made extensive repairs over the years. Now we plan to sell the house. What should we expect taxwise when we sell?
— Selling

A. The calculation could be a little complicated based on how you have treated the home while you’ve rented it out.

For starters, both the Internal Revenue Service and State of New Jersey will be owed tax on the capital gain — your profit — from the sale.

The profit is calculated by deducting the cost basis from the selling price, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

“The cost basis is calculated with the starting point being the appraised value of the property upon your mother’s death,” he said. “That is referred to as the step-up value.”

To that value, you would add the cost of any improvements and the closing costs to sell the house, Karu said.

Karu said if you’ve been renting it and have taken depreciation as an expense against the rental income, you must subtract the accumulated depreciation.

You indicated that you did extensive repairs on the house.

“If those repairs are being depreciated over their useful lives, then they are part of your cost basis,” Karu said. “However, if you took them as expenses against the rental income when you did they repairs, then they are not includable in the cost basis.”

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This story was originally published on Nov. 22, 2019.

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