People who receive real estate as a gift from a living benefactor or as an inheritance after a benefactor dies are not responsible for paying income or gift taxes on the property. However, you will have to pay some taxes whether you decide to keep the house or sell it.
You will have to pay state and local property taxes on the house for as long as you own it. The taxation agency will base the tax on the value of the house, which the agency assesses every year. You will receive property tax bills in the mail, usually annually, although you can choose to pay semi-annually or quarterly. Pay on time or you will face interest and penalties.
You will have to pay capital gains taxes if you sell the property without living in it for at least two of the last five years. Since the home was given to you for free as a gift or inheritance, the basis, or difference between what you paid for the property and what it sold for, will be high and you will likely owe a sizable amount in taxes. The IRS allows you to exclude up to $250,000 -- $500,000 if you are married -- of capital gains if you live in the house for at least two years out of the most recent five.
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Making a Decision
Deciding what to do with the property will involve weighing the tax implications of keeping or selling the property as well as the input and agreement of any other beneficiaries who inherited the property with you. Seek the help of a tax professional to avoid making mistakes that can increase your tax liability now or down the line.