15 Dec Will there be a tax when this inherited home is sold?

Q. Both my parents passed away in February 2021. My sister is the executor of the estate. We are in the process of selling the house, hopefully before the end of this year, 2021. Is there no longer an estate tax in New Jersey? Also, will the executor of the estate be obligated to pay any taxes on the proceeds of the sale of the house? The sale price of the house is $230,000.
— Beneficiary

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

You are correct about the estate tax.

In 2016, Gov. Chris Christie signed legislation that eliminated the New Jersey estate tax for individuals dying on or after January 1, 2018. But there is still an inheritance tax.

You didn’t say how the house was titled, whether your parents were married and who was the first to die. We’re going to assume they were married and the house was held as a tenancy-by-the-entirety by your parents.

If so, then upon the death of the first parent, the property would have passed to the surviving parent and no tax would be due, said Tom Szieber, a trusts and estates attorney at Herold Law in Warren.

“With both parents now deceased, whether the estate will be subject to taxes on the proceeds of the sale of the house, however, will depend first on who inherits the proceeds, when it is sold, and the purchase price,” he said.

If it is one or more of the children, grandchildren, great-grandchildren, or any ancestor or descendant “up or down the ladder” of the second parent, and/or one or more qualifying charities, then no New Jersey inheritance tax will be due, Szieber said.

TThe inheritance tax is only imposed on more remote relatives, such as siblings, cousins, nieces and nephews, as well as non-relatives, he said.

Under those circumstances, the transfer of the proceeds will be taxed at between 11% and 16%, depending on the amount inherited and the relationship between your parents and the beneficiaries, he said. Note that siblings or children-in-law of the decedent, known as “Class C” beneficiaries, may receive the first $25,000 free of tax.

Also, the portion of the proceeds in excess of the date of death value of the property would be subject to income tax, Szieber said. But if the sale was relatively quick, there probably won’t be much of a gain on the sale.

He says your sister should have the property appraised to determine its date of death value.

Finally, if the proceeds are part of an estate valued at more than the unused unified gift and estate tax exemption — $11.7 million for 2021, or possibly up to $23.4 million if the second parent to die was permitted to utilize some or all of the unused exemption of the first parent to die by the filing of a Form 706 upon the death of the first spouse to die — then they would be subject to the federal estate tax, he said.

If you’re not sure how to proceed, consider retaining an attorney who can help, especially if your parents were unmarried and the home was titled differently.

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This story was originally published on Dec. 15, 2021.

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.