Do I need an inheritance tax waiver to sell this home?

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Q. Q. I am the administrator of our uncle’s estate. I have already received my letters from the probate court. He was a New Jersey resident and his three remaining relatives — his sister, me and my brother — are not. I know I have to file an inheritance tax return in order to release the remaining one-half of his bank account. I don’t know how to pay the appropriate tax on the proceeds of his home which we have yet to sell. I also understand that I need the waiver to sell the home. This loop is where I get confused. I can’t sell the home without the waiver but I can’t get the waiver until I pay taxes. How can I pay the tax if I don’t know what the home will sell for?
— Executor

A. Let’s start with a factual inaccuracy you’ve made.

While you’re correct that you will need to file an inheritance tax return due to the existence of non-“Class A” beneficiaries, it’s incorrect to say you can’t sell your uncle’s home.

While you will need a tax clearance waiver from the New Jersey Division of Taxation, the lack of such a waiver does not preclude you from selling the home, said Tom Szieber, a trusts and estates attorney at Herold Law in Warren.

Rather, it means that the settlement agent/title company involved in the transaction will almost certainly hold a sizable portion of the proceeds in escrow until it has proof, in the form of the waiver, that the estate owes no inheritance tax, he said.

As for valuing the home for purposes of the inheritance tax return, your best option is to obtain an appraisal of the property as of the date of your uncle’s death, Szieber said.

Using the appraised date of death value and the date of death values of your uncle’s other assets, you — or more likely, a tax preparer such as an accountant — will be able to prepare and file the inheritance tax return and, once any taxes owed are paid, obtain the waiver, he said.

If the house has already been sold, you can supply the settlement agent/title company with the waiver to obtain the release of the escrow, he said. If it has not been sold, then the issuance of the waiver will allow you to avoid an escrow altogether.

“If the sale of the property took place prior to the filing of the inheritance tax return, a secondary option is to use the purchase price as the value on the inheritance tax return, provided the sale is an arms-length transaction,” Szieber said.

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This story was originally published on Nov. 11, 2021.

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