This may not be as bad as it looks once you read the information provided here.
First, the cost, or in your case the adjusted basis, of the home is the fair market value (FMV) on the date of death. Inherited property gets a "stepped-up" basis which simply means you get the value as your basis instead of what was actually paid for the property by the decedent (which is usually a much lower basis).
- You can add any cost you had for capital improvements after you inherited it to the basis above.
Next, this has now become your home for more than 24 months of the last five years ending on the date of the sale, which could qualify you for the home sale exclusion. If
you made money on the sale of your house, TurboTax will help you find out if
this profit is tax-free, up to $250,000 ($500,000 for married
filing jointly).
Lastly, if you meet the qualifications (which seems quite likely), then you have a tax-free gain. You can gift money to the others and as long as the gifts don't exceed the annual limit of $14,000 for each person a gift tax return is not required.
Thankfully, you won’t owe gift tax until you’ve given away more than $5.45 million (changes with inflation adjustments) in cash or other assets during your lifetime. The lifetime exclusion is $5.45 million in 2016. If you’re married, your spouse is entitled to a separate $5.45 million in 2016. So actually owing the gift tax is not a concern for most folks. But you may still have to file gift tax returns even though you don’t owe any tax. So please keep reading.
A return would have to be filed if you gift more than $14,000 to one person in a calendar year, but you won’t actually owe any gift tax unless you’ve exhausted your lifetime exemption amount. For more information about gift tax you can use the hyperlink here: The Gift Tax Made Simple
