When going through the process of the loss of a loved one, taxes may be the last thing on your mind, and since Utah does not have an inheritance tax, you might think after the estate handles paying any applicable federal taxes, that may be the end of it when it comes to taxes. Similarly, if you’ve never bought or sold real estate, you might be unaware of the capital gains tax on rental property or inherited properties, which does need to be paid if the property is sold. The capital gains tax is a tax on profits made from the sale of a non-inventory asset, whether stocks and bonds, fine art, jewelry, a classic car, or in this case, property. Whether you decide to rent the inherited property out yourself or sell it, there’s a range of options to consider the best decision for you.
Rental Properties Near Me and Deciding to Sell
One of the most straightforward ways to generate passive income is through rental properties. When I’m looking at rental properties near me, I often wonder how it compares to rent nearby and how much my own home could potentially be worth to rent. It’s probably an idea that has crossed more than one homeowner’s mind at least once. Whether such long-term profits outweigh the benefits of selling a potential rental property or not depends on your situation. In addition, even if someone else is renting the property, you will still be responsible for any maintenance concerns or issues dealing with tenants. For many, that short-term windfall while avoiding additional taxes can seem advantageous. However, any other value the property gains will increase your capital gains taxes when you decide to sell.
Rental Property and Capital Gains Tax
With rental property, the capital gains tax only applies if you sell it. Otherwise, rental property is subject to average yearly property taxes (and rent as taxable income). If you’re looking at whether it makes sense to turn an inherited property around into a rental or not, these kinds of taxes can be a deciding factor. If your property increases in value (as we all want our property to do generally), it will increase whatever amounts you might have to pay in capital gains taxes when it comes to capital gain taxes.
As of 2020, capital gains taxes in Utah are taxed at the regular income rate of 4.95%. You may also be required to pay a federal capital gains tax. Capital gains tax calculators are available online to provide general guidelines about what you might need to pay. Of course, any online calculator is a limited substitute for a licensed accountant or tax specialist. If you think you may need to pay capital gains taxes, spending the money consulting one vastly outweighs the costs in back taxes or other potential penalties or fees.
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The easiest way to pay the lowest capital gains tax on inherited property is to sell it as quickly as possible. If the property was inherited at a specific value and sold as close to that value as possible, it will reduce the principal amount you need to pay capital gains taxes on. The longer you wait, the more you may earn, but also the more you may end up having to pay capital gains tax on rental property. If you’re looking for someone to make an offer on your house today and sell it quickly, we specialize in producing this complicated process as efficiently as possible. Call one of our representatives today; we want to make you a cash offer, often within minutes and make this process quick and easy for everyone involved.