01 Apr I inherited a house. How do taxes work if I sell it?

Q. My father passed in December 2023. If I fix his house up and sell it in 2024, is that considered an inheritance or do I pay taxes on the profit over the mortgage left on it?
— Trying to decide

A. We’re sorry to hear your dad.

Let’s start this discussion with the assumption that your father leaves his house to you under his will.

When he passed, the house became yours, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Because you inherited the house, you receive what’s known as a step up in basis, Kiely said.

Basis is tax speak for your tax cost.

“When you inherit an appreciated asset, your cost basis is the fair market value of the asset when the decedent passed,” he said. “The basis is stepped-up to the market value.”

This would not be the case if your dad gave his house to you while he was alive, Kiely said. With a gift, the basis is the giver’s cost basis, he said.

“When you sell the house, your taxable gain is the sales price minus your cost basis,” Kiely said. “In your case, your cost basis would include the funds you spent to fix up the house. The amount of the outstanding mortgage has no bearing on your taxable gain.”

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This story was originally published in March 2024.

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