02 Jul What kind of taxes will be owed on this inherited home?

Q. My sister and I have inherited our parents’ home in New Jersey and we will be selling. Because this is not a primary residence for either of us, we don’t qualify for the tax exclusion. From my research I understand that the amount of capital gains will be based on the difference between the fair market value and the actual sales price of the home. Since we are co-owners, our tax liability for this amount will be divided equally. I live in New Jersey and my sister does not. How will this work?
— Beneficiary

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

The capital gains tax calculation is favored for inherited homes if you sell relatively quickly after the death of the person who owned it.

Your sister will have to file a non-resident income tax return to report her half of any capital gain on the sale, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

“Assuming she lives in a state with an income tax, she should be able to get a corresponding credit for the state tax paid against her resident state income tax, he said. “The likelihood is the amounts will not be exactly the same, but should be close.”

On Schedule D of your personal returns, each of you would report “50% of 123 Main St, Anytown, N.J.,” he said.

“You would report your half of the selling price and your half of the value as of the date inherited plus any carrying costs, such as real estate taxes, utilities and maintenance, plus any selling costs,” Karu said. “The difference between those two is your profit.”

As an aside, he said, you may need to file Form L-9, which is a self-proving waiver, with the State of New Jersey unless an inheritance tax return was filed.

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This story was originally published on July 2, 2021.

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