Paying Taxes on an Inherited Property in Texas

Paying Taxes on an Inherited Property in Texas

Inheriting a property can be a complicated and overwhelming process, especially if there are taxes owed on the home. From federal estate taxes to property taxes—there are different laws and tax exemptions depending on the state. Here is a quick guide to help you navigate paying taxes on an inherited property in Texas:

Capital gains taxes – These are taxes paid on the appreciation of any assets that an heir inherits through an estate. When you inherit a property, the IRS applies a stepped-up cost basis, which is a tax code that resets the price of the property or asset to its value the day that you inherited it. If you sell your property immediately after you inherit it, you will not owe capital gain taxes.

State estate taxes – The estate tax is a tax that is paid from the estate of the deceased person before it is passed on to the heirs. The state of Texas does not have an estate tax, it is one of the 38 states with no estate tax. So, Texans will not have to pay the estate tax to the state, but some may have to pay the federal estate tax.

Federal estate taxes – There is a 40% federal estate tax; however, this tax is only applicable to estates worth $11.7 million for deaths in 2021 and $12.06 million in 2022. In other words, if an estate surpasses that number, any value above that mark is subject to the federal estate tax. Estates worth less than that pay nothing to the federal government.

Property tax – If you inherited a property in Texas with property taxes on the home, the legal heir or individual inheriting the property will be responsible to pay off all property taxes and relevant penalties owe. These taxes may be substantial, especially if the taxes had been deferred for many years prior to the inheritance.

Options for Paying Delinquent Property Taxes on an Inherited Property

If you’ve just inherited property in Texas and find out there are property taxes owed, it is important to quickly assess your options before late fees and penalties increase. Here are a few options for paying your property taxes on an inherited property:

Sell the Property – Many people sell their inherited property quickly so they can use the proceeds to pay any property taxes, penalties, and interest that’s owed on the home while retaining any profit.

Rent the Property – Another option is to rent the property as an added form of income. However, it may be difficult if you have never rented out a home before or if you live in another area. In this case, you would need to hire a landlord to manage your property for you. Either way, you will still owe property taxes on the home and it’s important to pay them off as soon as possible to avoid fees.

Secure a Property Tax Loan – If you choose to stay at the property you’ve inherited as your primary residence, you’ll want to pay off the property taxes and any fees quickly. A property tax loan offers greater flexibility than a credit card because helpful loan officers can work directly with you to customize a repayment plan that meets your needs. Property tax loans offer the convenience of potentially lower interest rates and repayment on a schedule that accommodates your unique situation all while leaving your credit card open for other needs or emergencies that may arise. Contact us today so we can work together on a plan to take control of your property taxes.