Be Aware of Capital Gains Tax when Managing an Inheritance

In the case of inheritance, while there are no direct taxes, assets acquired from an estate can be subject to capital gains tax. A capital gain is any profit that results from the sale or transfer of an asset. To calculate a gain, simply subtract the original purchase price plus any other costs from the sales price, or in certain instances when the property is inherited its current market value.

For example, say your father purchased his home for $200,000. He spent $20,000 improving the property. When he died, the home's appraised value was $250,000. When you sell the home, unless you use this home as your main residence, the taxable capital gain is calculated as the difference between the proceeds you receive and the market value at time of death i.e. $250,000. Keep in mind this is a very simple example and you should seek professional advice before entering into any contract for sale of an asset, so you understand the tax ramifications beforehand.