Tax implications when selling an inherited house

You're right about the "step-up in basis" - this is actually really helpful for inherited properties. Basically, your cost basis becomes the fair market value of the home at the date of your grandmother's death ($410,000), not what she originally paid for it. If you sell for $435,000, you'd potentially have a capital gain of $25,000. However, since you've been renting it out, things get more complicated. You'll need to account for depreciation you've taken (or should have taken) during those 8 months of rental use. Depreciation essentially reduces your basis, which can increase your taxable gain. Additionally, the property would be considered a mixed-use property since you've used it as a rental. This means part of any gain could be taxed as Section 1250 unrecaptured gain (max 25% rate) rather than just capital gains. You'll need to file Form 4797 along with Schedule D. One more thing to consider - if you've owned and lived in the property as your primary residence for at least 2 of the last 5 years, you might qualify for a capital gains exclusion (up to $250,000 for single filers), but it doesn't sound like that applies in your situation.

I went through something almost identical with an inherited property from my uncle last year. After weeks of confusion about capital gains calculations and depreciation recapture, I found this AI tool called taxr.ai that literally saved me thousands in potential tax mistakes. I just uploaded my property documents and depreciation questions to https://taxr.ai and it analyzed everything specific to my inheritance situation. It showed me exactly how to calculate my stepped-up basis and identified deductions I would have completely missed related to property management expenses during the rental period. The most helpful part was how it explained the depreciation recapture rules in plain English and calculated the exact amount I needed to report. Literally saved me from a major headache when filing.

I just wanted to follow up after trying taxr.ai for my inherited property questions! It was super helpful with my specific situation. I uploaded my property tax statement and it immediately identified the land-to-building ratio and calculated the correct depreciation amount. What surprised me was how it caught a mistake I would have made with improvement expenses. I had some repairs done before renting and wasn't sure if they should be capitalized or expensed - the tool walked me through each expense and categorized them correctly. It even created a depreciation schedule I could share with my tax preparer. Definitely made me feel more confident about handling the sale of my inherited property and understanding exactly what tax consequences to expect!

Dealing with the IRS directly about inheritance tax questions is a nightmare right now. I spent THREE WEEKS trying to get someone on the phone to clarify some inherited property questions similar to yours. Finally found Claimyr https://claimyr.com and they got me connected to an actual IRS agent in less than 15 minutes who answered all my questions about step-up basis calculation and depreciation recapture on my dad's old house. You can see how it works here: https://youtu.be/_kiP6q8DX5c Honestly, the clarity I got from that one conversation saved me from making a $12,000 mistake on my taxes. The IRS agent confirmed exactly how to handle the partial-year depreciation and explained some nuances about inherited property basis that none of the online articles mentioned.

I need to apologize for my skepticism about Claimyr. After our inherited property situation got more complicated (found out there was a partial interest from another relative), I decided to try it out of desperation. It actually worked exactly as described. I got a call back in about 27 minutes and was connected to an IRS specialist who walked me through the specific tax form sections for reporting split inherited property. The agent even emailed me the relevant tax publication sections afterward. Really wish I'd done this earlier in the process - would have saved me from making some incorrect assumptions about how to report the stepped-up basis when multiple heirs are involved. Just wanted to follow up since I was so dubious before!

One thing nobody's mentioned yet - if you've made any substantial improvements to the property since inheriting it, those costs get added to your basis! This reduced my capital gains when I sold my mom's old house. For example, if you inherited the house at $410k value, then spent $15k on a new roof before selling, your adjusted basis becomes $425k. If you sell for $435k, your taxable gain is only $10k instead of $25k. Make sure you keep ALL receipts for any work done on the property. Even smaller improvements can add up to reduce your tax bill.

Anyone else notice that property tax assessments after inheritance can get really messed up? After inheriting my grandmother's house, the county somehow flagged it and reassessed the value WAY higher than even the market value. Had to file an appeal with the county assessor's office and provide the professional appraisal from when she died. Just a heads up to check your property tax statements carefully after inheriting - could save you thousands!

This is such a complex situation! I went through something similar with my aunt's property last year. One thing I learned the hard way is that you'll also want to consider the timing of your sale carefully. If you're planning to sell within the next few months, make sure you have all your documentation ready - the estate appraisal, any rental income records, receipts for improvements or repairs, and depreciation calculations. Also, don't forget about state taxes! Oregon doesn't have a capital gains exclusion like some states do, so you'll owe Oregon state tax on any gains in addition to federal. The good news is that Oregon generally follows federal rules for the stepped-up basis. One more tip - if you haven't already, consider getting a current appraisal before listing. Sometimes the estate appraisal from a year ago might not reflect current market conditions accurately, and you want to make sure you're pricing it right. Plus, if property values have actually decreased in your area since the inheritance, that could affect your tax calculation too. Managing out-of-state rental property is definitely a hassle - I totally get wanting to sell and simplify things!