Now that it is tax season, residents in Ohio who received an inheritance last year may be wondering if they are responsible for any taxes related to the property. The good news is beneficiaries are not responsible for any taxes on items they receive as part of an estate. However, if property was sold, the sellers may have to pay taxes.
According to FindLaw, to determine whether or not taxes are owed, the basis needs to be calculated. For property that is not inherited, the basis typically is the cost the seller originally paid for the property. Beneficiaries often benefit in that the basis for inherited property is the fair market value of the asset on the day of the descendant’s death. In many situations this means the tax liability will be lower than for normal property sales.
According to the Internal Revenue Service, the fair market value of the property can usually be obtained by the executor of the estate. Once the basis is determined, the actual sale amount of the property is compared. A taxable gain occurs when the seller sells it for an amount higher than the basis. Sellers who purposely inflate the basis to lower their tax liability may face an accuracy-related penalty, which was made into law in 2015.
There are a couple forms any property sale needs to be compliant with the law. Sellers need to fill out both Form 8949, under Sales and Other Dispositions of Capital Assets, and Form 1040 Schedule D, which reports Capital Gains and losses.