Capital gains on decedent’s property (no will)

[eugeneriverdale]

I am the administrator of my mother’s estate in Colorado. She did not have a will when she passed in 2023. I am in the process of selling her house, but since her house was not bequeathed to any of my siblings or me, I want to know what the tax obligation will be on the gains. The house was purchased in 1995 and will sell for considerably more in 2024. Does the estate have to pay taxes on the entire gain? Or would my siblings and I (who will receive equal shares of the inheritance) only pay taxes on the stepped-up gains?

[Mike9241 · Accepted solution]

Probate will determine the owner. Despite not having a will the tax basis of the property will be stepped up to the Fair market value (FMV) on the date of her death.  So any gain or loss will be the selling price less selling expenses less the FMV. The administrator of her estate is the one to determine where the taxes, if any,  are paid. it could be at the estate level (remaining proceeds distributed tax-free to the beneficiaries) or the gain can be passed out to the beneficiaries on k-1. another possibility is for the admin to distribute the property to the beneficiaries before the sale so they would be owners and sellers each responsible for reporting the sale directly on their returns. 

in part, this depends on state laws. 

[Anonymous_]

---

@eugeneriverdale wrote:

.....Does the estate have to pay taxes on the entire gain? Or would my siblings and I (who will receive equal shares of the inheritance) only pay taxes on the stepped-up gains?

---

If the gains are substantial (unlikely if property is sold shortly after death), then it is likely best to pass the gains on to the beneficiaries due to the highly compressed estate income tax bracket.