Taxes on Inherited Property in San Diego, California

Imagine waiting for the green walk sign, looking both ways and confirming that the road is empty before crossing the street — yet the minute you do so, you get hit by a truck that came out of nowhere. That’s how some people feel about inheriting property and the taxes surrounding it.

Inheritances are becoming more common today as the baby boomer generation grows older. A survey in 2022 shows that over 60% of U.S. households have received, will soon receive, or plan to leave an inheritance. That’s over 15% more than the 46% who answered the same back in 2015!

This is likely to keep going up, too. According to a report from Cerulli Associates, a whopping $84.4 trillion worth of assets is expected to be passed down as inheritance until 2045.

Being on the receiving end of an inheritance is a windfall most welcome in today’s challenging economy. However, it’s not necessarily always a cause for celebration. That’s all because of taxes on inherited property in San Diego, California.

Typical Tax CA Considerations

The good news for San Diego residents is that California does not impose any state inheritance taxes, state estate taxes, or gift taxes! However, it’s important to note that some other taxes still apply.

Three necessary federal taxes you need to pay are:

Federal Estate Tax Return

The federal estate tax is imposed on property transfer after a person’s death. Fortunately, the federal estate tax exemption is relatively high.

The current exemption stands at $12.06 million per individual or $24.12 million for a married couple. This means that if the estate’s total value, including inherited property, falls below these thresholds, you will not owe any federal estate tax.

Federal Estate or Trust Income Tax

When you inherit a San Diego property, you may also need to consider the federal estate or trust income tax. This tax is levied on the income generated by the inherited property, such as rental or interest income.

You can offset the taxable income with deductible expenses, such as property maintenance costs or mortgage interest payments.

Individual Income Taxes

Individual income taxes may apply when you decide to sell the inherited property. You will be liable for any capital gains tax on any increase in value that occurs after the date of inheritance.

However, a significant benefit is known as the “step-up in basis.” Thanks to this benefit, you will only owe taxes on the appreciation or the increase in value after the date of inheritance instead of the entire gain since the original purchase.

Consult Local San Diego Accountants

Navigating the tax landscape surrounding inherited property can be complex, even without the burden of state inheritance taxes. Capital gains alone can go up to a considerable amount.

That’s why consulting with a local accountant specializing in tax and inheritance matters is crucial. A knowledgeable accountant can help you understand the inheritance’s financial details and suggest tax-minimization strategies.

Common ways to legally minimize capital gains tax liability often include selling the inherited property as soon as possible, using your inherited property as your primary residence, or deducting selling expenses from the capital gains. An accountant can advise you on the best action based on your needs and situation.

Get a Cash Offer While You Are Here

If you find yourself inheriting property in San Diego, you may want to explore your options — specifically selling your inherited house for fast cash to avoid more taxes. This is a sound option, particularly if the property in question has a lot of issues, making it impossible for you to move there and make it your primary residence.

You can list your inherited property with a realtor in hopes of selling it. However, this method only sometimes produces immediate results. It can give you an idea of how much your inherited home can go for and the expenses you can expect to pay if you go with this route.

A practical suggestion is to approach trusted cash-for-home buyers who can offer you a free instant cash offer for your inherited property. This will estimate how much the house is worth and provide you with a valuable benchmark as you consider your next steps.

Get an Idea of the Value I Buy SD Offers

There is no shortage of cash for home buyers in the state, much less in San Diego. The key is to find an established cash buyer to ensure you get someone trustworthy and reliable rather than someone running a scam.

Whether you want to know how much your inherited home is worth in straight cash or seriously intend to sell it immediately, I Buy SD can help you to sell my house fast San Diego.