When inheriting a house in New Jersey through the probate process there are some taxes you'll have to pay.  The taxes that will be paid are called Capital Gains tax.  Before getting into the specific rules of capital gains when inheriting a property, let us go over what it is exactly.

From the New Jersey Department of the Treasury, Division of Taxation, a capital gain is the profit you realize when you sell or exchange property such as real estate or shares of stock.  If you are a New Jersey resident, all of your capital gains, except gains from the sale of exempt obligations, are subject to this State's income tax (http://www.state.nj.us/treasury/taxation/njit9.shtml).  

When an heir inherits a property, the IRS (Internal Revenue Service) determines their basis in the property on the date of the owners death.  A basis is the difference between the cash price and future price of the property.  The IRS will use the house's fair market value to determine what your capital gains are.  Lets compare an inherited property to one that you have purchased.

Your House:

Purchased For: 100k

Current Marekt Value: 150k

If you were to sell your house you would be profit a total of $50,000.  You would be taxed on this profit.

Inherited House:

Purchase For: 100k

Current Market Value upon Death of original owner: 135k  (this would be your new tax basis)

If you were to sell the house for 150k now, you would profit only $15,000 and that would be your taxable income.

Another item to consider is what the tax rate will be.  In New Jersey there are long-term capital gains and short-term capital gains.  If the house is sold within one year of obtaining ownership, then this is considered a short-term and are taxed at a rate of ordinary income (i.e. same tax rate that is used against income from a job).  This rate is generally higher then the rate of long-term capital gains taxes.  The rate of long-term capital gains taxes may be regulated by the fedral government and is different depending on your tax bracket.  Since 2003 the long-term capital gains tax is 15%, but only 5% for the lowest two brackets.

Be advised though that holding out for a year in order to pay less taxes may be more costly as maintenance, property taxes will ad up quickly.  Do your homework and make the best decision for your situation.

If you wish to sell an inherited house and don't want to go through the hassles of fixing it up in order to sell on the market, or just not being certain when it will sell send Scott from http://www.ScottyBuys.com/Probate and he can help you out.  There is no obligation or cost.

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Having to watch over a vacant home is a full time job and one that can get old really quick.  Most times when you inherit a house from a deceased relative
it is either in another town or even on the other side of the country. 
Have you ever been driving through a neighborhood that had a vacant
home?  It is usually very easy to spot, either by the unkempt lawn or
the news papers have piled up.  Even if some one is hired to mow the
lawn and pick up the papers, there are always signs and those signs
scream out to vandals and thieves that this house is vacant.  

There are steps you can take to best keep the house in order and in sellable condition. 
In the end getting the best possible price for the home is the goal,
but sometimes selling it quickly can save you a ton of money and
headaches.  Until the time comes when the house actually sells please
take the following actions in order to best protect yourself and the
vacant house.

1) Get Vacant Homeowners Insurance.  This is a MUST, as the regular
homeowners policy will most likely be dropped by the provider once the
home is vacant for 90 days.  This is not always true, but when there is
an accident or a claim, the policy will not cover what you think as it
assumes the house is occupied.  Call your insurance company and tell
them about the vacant house situation, not all companies will cover a
vacant house so finding one that will is paramount.  

2) You’ll need someone to look after the house.  Call a neighbor,
friend or relative that lives in the neighborhood to have them help
maintain the house.  They should go into the property about once every
week, it’s important to stay on a routine schedule in order to catch
possible hazards, water leaks or break-ins. Doing so will limit the
damage or even prevent it.  

3) Get an Alarm system.  This has two benefits, one it with prevent
break-ins and two your new vacant homeowners policy might give you a
discount for having one installed.  Not only that but it will give you
the peace of mind that the house is safe.

4) Do preventative maintenance by turning off water to the house and
drain the pipes to prevent them from freezing in the winter.  If you
can not drain the pipes then during winter months keep the house
temperature between 58 and 60 degrees.  Also have the walk ways,
driveways and front steps cleared of any snow or ice in the winter
months.  In the summer months have the lawn mowed, shrubs trimmed and
just keep the house generally looking good.  

Yes this is a lot of work, but can not be left undone.  Did you know
that if you are an executor of an estate, New Jersey Probate Law says you can be held liable for
accidents that occur on or in the vacant property?  If a pipe leaks and
nobody checks on the house for weeks at a time, the damage could be
more  then $100,000 and cause deadly mold to form.  Once a house
displays signs of mold it INSTANTLY becomes very hard to sell and
expensive for remediation. 

If you wish to sell the house now, contact Scott from http://www.ScottyBuys.com no obligations or cost.

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Do You Need to Insure a Vacant House in Probate?

Absolutely!  It's really that simple, being protected against the unexpected is vitally important.  Under New Jersey Probate Law, the executor/administrator of a will can be held financially responsiblefor incidents that occur on a vacant property.  Just imagine the costof being sued because a child tripped on while playing in the unkeptyard, of the vacant home, and broke a wrist.  It can happen andinsurance is the only way to protect yourself while the house is stillunder your control as executor.

Vacant Home insurance isdifferent then the normal Homeowners Insurance you might have for yourcurrent house.  It is a unique protection placed on vacantbuildings/homes that are expected to be unoccupied for more then 90days.  The first thing that needs to be done is the cancellation of theexisting home insurance and then the vacant home policy can be put intoplace.  This vacant policy will be more expensive for a variety ofreasons, let me give you an example of why…

John and hisfamily recently moved out of there 2 bedroom, 1 bath house to a largerhome in order to better suit his growing family.  Unfortunately he hadyet to sell the old house and it has been sitting vacant for the past 2months.  As time went on John was unable to check on the house as oftenas he would have liked.  One day, about 3 weeks since he last to a lookat the old place, he was driving in the neighborhood and decided tocheck up on the unsold house.  As he walked into the front door he sawa large wet spot on the floor, noticed a terrible mildew smell and thewallpaper was pealing right off the walls because of all the moisture. What had happened?

The washer hose sprung a leak and had beendripping water for 3 weeks.  If John had still lived in the house, atworst, he would have come home from work 8 hours later to find a smallwet spot by the leaking hose and would have avoided massive damage. The claim would have been small, about $10,000 of water damage, butsince the house was vacant and there was nobody to discover the leakfor 3 weeks the water caused over $100,000 worth of damage. WOW!

Ifthe normal homeowners policy was somehow still in affect, the insurerwould probably only cover the first $10,000 of any claim in thissituation, that is why you must get a VACANT homeowners policy in placeas quick as possible.  You want to be protected.

Even though avacant homeowners policy is more expensive, that cost can be mitigatedby raising the deductible amount that you are willing to pay.  Adeductible of $5000 would save you a ton of money compared to one of$500.  

Liability Insurance Coverage is also extremelyimportant. Being away from the house can create a situation where youmay be found negligent or liable for damages in a court of law andsituations you did not foresee. The most common example of this, issomeone comes onto your property to deliver something, or for someother legal reason, and they are injured because you have not cut thegrass, shoveled the snow, or another reason related to the home beingunoccupied. A child wandering on your property and being hurt isanother common example. Liability coverage is very important andwithout it, as the executor of the estate, you are risking yourfamilies savings.

Yet another coverage option to look into iscontents coverage.  If there is anything valuable left behind in thehouse, that won't necessarily be covered by the vacant homeownersinsurance.  This depends on the policy so you must ask.

Also askif the policy covers for vandalism, many vacant homeower's policies donot. Vandalism is the most common claim for a home that is not beingoccupied by the primary family members.

Important Notes, If ahouse becomes vacant for a period of 90 days or greater the originalhomeowners policy may be dropped by the insurer at any time.  They get very nervous when a house is vacant.   

Ifyou have no plans on living in the house, you should attempt to sell itas quickly as possible to avoid problems.  If the house is in badcondition or you have attempted to sell it and failed you still haveoptions.  Contact Scott at www.ScottyBuys.com/Probate and he canpossibly help.  There is no risk or obligation.

A typical Vacant Homeowners policy over at www.vacanthomeinsurancenow.com looks like this…

Coverage Offered:
H03 policy wording (all risk coverage on the dwelling / replacement cost coverage at the time of claim)
Named Perils coverage on the contents if any items are left behind in the home.

Liability Insurance included at $100,000 with legal defense costs:
Additional liability coverage of up to $1,000,000 available on the vacant dwelling.
Legal defense costs included in the liability coverage

Deductible: Minimum deductible amount of USD 1,000 per occurrence.

Dwelling limits: Coverage limit of up to $1,250,000 per dwelling if requested.

Other structures coverage: Coverage equal to 10% of the dwelling limit.

ContentsLimits: 10% of the dwelling limit up to $25,000. More contents coverageavailable upon request if items are remaining in the unoccupied home.

Coverage limit of $1,000,000 per event.
Aggregate annual limit of $2,000,000 per master policy.
(Not available in all locations)

Coverage limit of $1,000,000 per event.
Aggregate annual limit of $5,000,000 per master policy.
(Not available in all locations)

Windstorm or Hail:
Subject to a deductible equal to 2% of the dwelling coverage limit.
Dwellings located in high risk counties or cities are subject to a deductible equal to 5% of the dwelling coverage limit.

Territorial Limits: Home can be insured in the U.S., Canada, U.K. EU, Australia and in 50 other countries if approved insurers.

Alarm system: May be required by some insurance companies


*As always articles on this site are informational only, any legalmatters must be brought to an attorney who specializes in the field*