Do You Have To Pay Taxes On A House That You Inherited In Massachusetts?

For many people, because their house is their most valuable asset, it is the central or pivotal piece to their estate plan.  . Real estate may be passed on to a child or another individual(s). What happens when someone inherits real estate in Massachusetts? Will they be required to pay taxes? Within this blog post, our Boston estate planning attorney provides a comprehensive overview of the most important things that you should know about taxes on a house that you inherited in Massachusetts.

Inheriting Real Estate? An Overview of Tax Obligations 

The Recipient Does Not Have to Pay an Inheritance Tax 

In Massachusetts, the recipient of an inherited house does not have to pay an inheritance tax. However, the estate of the deceased might be subject to an estate tax if it exceeds a certain value. The Massachusetts estate tax exemption threshold is far below the federal exemption threshold. Still, any estate in Massachusetts worth less than $2 million (death after January 1st, 2023) will not be subject to an estate tax.

The Recipient Will Become Responsible for Annual Property Taxes 

What about ongoing tax obligations? Once you inherit a house, you become responsible for the ongoing property taxes. In Massachusetts, property taxes are used to fund local services like schools, roads, and public safety. These taxes are assessed based on the property’s value and are paid annually. The rate can vary depending on the city or town the property is in. In some cases, people may use estate planning strategies to set aside funds to cover those property tax obligations on behalf of the heir for a certain number of years. 

The Recipient May Responsible for Some Taxes When Selling the Property 

What happens if you sell a house that you inherited? Will you be required to pay taxes? The short answer is “it depends.” There are two major taxes that you need to be aware of when selling a property in Massachusetts. Here is an overview: 

• Transfer Tax: Massachusetts imposes a transfer tax on the sale of any real estate. This is a fee paid to the state when the property changes hands and is typically based on the sale price of the property. As the seller, you will usually be responsible for this tax. It must be paid out of the proceeds of the sale, regardless of whether or not you inherited the house.
• Capital Gains Tax: Capital gains tax is a tax on the profit from the sale of property or investments. However, inherited properties are often eligible for a “step-up in basis.” property’s value for tax purposes is its market value at the time of the previous owner’s death, not what they originally paid for it. This is a very important tax benefit. In practice, it means people in Massachusetts often owe zero capital gains taxes on an inherited property.

Set Up a Confidential Consultation With a Top-Tier Boston Estate Planning Attorney Today

At Fisher Law LLC, our Boston estate planning lawyers are solutions-first advocates for people and families. Have any questions about your rights or options when inheriting a house? We can help. Give us a phone call now or contact us online to set up your completely private case review. We provide estate planning guidance and support throughout the Greater Boston metro area.