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I inherited my mom’s home recently when she passed away. There is a small mortgage. What are the tax implications if I sell the home?


Condolences on your mother’s death. When figuring your tax liability upon selling the home, the key piece of information is its fair market value when she died. The IRS uses that as the cost basis on which any gain or loss is calculated (not just on real estate but any inherited asset).
The agency does not indicate how fair market value would be determined for a home on the date of the owner’s death, (if you had inherited a portfolio of stocks, for instance, its value would be based on the closing price of the stocks in the portfolio on that date), but it does say that any sale soon after inheritance is likely to result in “little or no gain.” If you expect to hold on to the home for a significant period, it might be wise to get two independent valuations and use the average as fair market value.
Once the home’s value is established, the circumstances of the acquisition are essentially irrelevant and the normal tax rules relating to capital gains apply. As for the mortgage, that’s a red herring. If the home were worth, say, $500,000 when your mother died and you sold it for $600,000 within a year, you would have a $100,000 short-term capital gain. How much money you have after you sell the home and pay the note off with the bank depends on the size of the mortgage, but the taxable gain is the same, as far as the IRS is concerned.
-Conrad de Aenlle