Will You Have to Pay Taxes If You Inherit a Home from Your Parent in New Jersey?
For many people, real property makes up a significant share of their overall estate. According to data from Zillow, the average home in New Jersey reached a record high $522,643 in early 2024. Many people pass down their homes to their children. This raises an important question: Do you pay taxes on a home you inherited from your parents? The short answer is “it depends”—though most people are exempt from estate tax liability. Here, our New Jersey estate planning attorney explains the key points to know about taxes and inheriting real property.
Most People Will Not Owe Estate Tax On an Inherited a Home
The estate is responsible for any estate tax liability. Notably, few estates that leave a house to an heir in New Jersey are required to pay estate tax. In New Jersey, the state-level estate tax was eliminated in January of 2018. The federal estate tax exemption is $13.61 million per individual ($27.22 million for a married couple) in 2024. If the total value of the estate is below these thresholds, it can be passed tax-free to heirs. In other words, there is no automatic inheritance tax that comes with the house.
You Will Become Responsible for Property Taxes
New owners will face property tax liability. Indeed, upon inheriting a home, new owners become responsible for the annual property taxes. In New Jersey, property taxes are levied at the local level. They can vary significantly between different counties/municipalities. As a new homeowner, you will need to budget for these taxes. Make sure you are fully aware of your property tax liability.
Certain Taxes May Apply if You Sell the Home
Are you considering selling a house that you inherited from a parent in New Jersey? There are some tax issues that you need to be prepared for. Here are the two primary taxes to know about:
- Realty Transfer Fee (Always Must Pay): When you sell a home in New Jersey, you are required to pay a Realty Transfer Fee (RTF). This fee is calculated based on the sale price of the home and is required regardless of how long the home was held before it was sold. It is a one-time tax levied at one percent of the value of the property.
- Capital Gains Tax (Often Zero or No Liability): Capital gains tax is another consideration when selling an inherited home. However, due to the ‘stepped-up basis’ rule, many people find that they have little to no capital gains tax liability. The stepped-up basis means that the home’s value for tax purposes is ‘stepped up’ to its market value as it was transferred to the heir. If you sell the home soon after inheriting it, the sale price is likely to be close to this new basis—meaning little or no capital gains tax liability.
Contact Our New Jersey Estate Planning Attorney Today
At Poulos LoPiccolo PC, our New Jersey estate planning lawyers are focused on helping people find peace and security through comprehensive planning. If you have any questions about inheriting a house, we are here as a resource. Contact us now for a completely confidential initial consultation. We provide solutions-driven estate planning services throughout New Jersey.
Source:
zillow.com/home-values/40/nj/
