Inheriting Your Parents House | Do I Have to Pay Tax On A House That I Inherited

In this video, we’ll go through the various steps of Inheriting Your Parents House, and the various tax implications of doing it prematurely. In short, you will not have to pay any special Capital Gains taxes if the property is passed on via a Will after death. However, if the Property Deed is passed on before death, then the Capital Gains will be tens of thousands.

NOTE: The information provided by John Ross is intended for educational use only. Please consult with a registered professional before acting on any information herein.

0:00 Inheriting Your Parents House
0:31 What Are the Tax Implications of Controlling a House Before Death?
2:24 Do I Have to Pay Tax On A House That I Inherited?
3:27 What To Do with the Inherited Property?
4:49 What If You’re the Current Owner of the Property?


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If you’re like me, you may be thinking that you want to take control of your parents’ assets right now, even if you’re not legally bound to do so. This can lead to a lot of tax obligations for you. In the same way, giving away your assets to your children while you’re still living, just gives them a hefty tax burden.

If you think transferring assets now will keep the court from controlling assets once a parent becomes incapacitated (and avoid probate), remember that giving someone other than your spouse more than $14,000 in a year entails a gift tax. If you sell your parent’s assets, you will get slapped with a hefty capital gains tax. This is because you didn’t really receive the asset as an inheritance upon death, so there are no shortcuts there.

There’s no federal inheritance tax, so most of the time, you won’t have an immediate tax liability after inheriting a property. Still, financial and legal responsibilities depend on a variety of things, like existing debt obligations you may have such as a mortgage. You’ll also need to consider the current condition of the property, as well as how much it’s going to cost you to spend on upkeep and maintenance.

Normally, a lot of mortgages can be assumed by heirs, so you can take over any payments or the remaining debt based on the terms of the original loan. However, for reverse mortgages, the unpaid balance will be due on sale or when the mortgagor passes away. This means that the heirs are now required to sell the property in order to settle the debt.

Obviously, you need to check the condition of the house. If it’s going to cost you a huge amount of money just to improve a house that hasn’t been maintained, then you might want to consider selling the house instead of repairing it and keeping it for yourself. If you share ownership of the inherited house with siblings, it’s important to get everyone’s opinion on the matter to avoid complications.

If you decide to sell the house, you need to pay short-term or long-term capital gains tax if you profited on the sale of the property, based on current market values at the time of death. If you do decide to move into the house, you can make use of the capital gains exclusion in the future once you decide to sell it later down the road. For now, you’ll need to repay any debt, taxes, and property insurance if you’re moving in.

Giving your property away, on the other hand, is better done through a revocable living trust so that you have the option of changing your mind in the future. Also, gifting a property will trigger a “due-on-sale” clause where you’ll be required to pay your mortgage in full right away. Also, if your heir gets into financial trouble at any point, the property could be foreclosed in a bankruptcy, so you always run that risk.