Additionally, she will owe a 3.8% net investment tax on the $350,000 of income because her income is more than $200,000 as a single filer, according to Gail Rosen, a CPA in Martinsville, N.J. ![]() In other words, she will pay tax on $350,000 of income at the favorable capital gain rate because she held the property for more than one year. If Jane buys a property for $250,000 in 2000 and sells it for $600,000 in 2021, she will pay capital gains on the increase from $250,000 to $600,000. Additionally, you benefit by inheriting it on a stepped-up basis, meaning that you only pay on any gains over fair market value from the date of inheritance, not the original purchase price of the property. You can avoid paying capital gains tax on an inherited rental property through any of the three methods listed above.
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