Do I need an inheritance tax exemption to sell this house?
Q. I am the administrator of our uncle’s estate. I have already received my letters from the probate court. He was a resident of New Jersey and his three remaining parents – his sister, me and my brother – are not. I know I need to file an inheritance tax return in order to release the remaining half of his bank account. I don’t know how to pay the proper tax on the proceeds from his house that we haven’t sold yet. I also understand that I need the waiver to sell the house. This loop is where I’m confused. I can’t sell the house without the waiver, but I can’t get the waiver until I pay taxes. How do I pay the tax if I don’t know what the house will sell for?
A. Let’s start with a factual inaccuracy you made.
While you are correct that you will have to file an inheritance tax return due to the existence of non-“Class A” beneficiaries, it is incorrect to say that you cannot sell your uncle’s house.
While you will need a tax exemption of the New Jersey Taxation Division, the absence of such a waiver doesn’t prevent you from selling the house, said Tom Szieber, a trust and estate attorney at Herold Law in Warren.
Rather, it means that the settlement agent / securities firm involved in the transaction will almost certainly own a significant portion of the proceeds in escrow until he has proof, in the form of a waiver, that the estate owes no inheritance tax, he said.
As for the valuation of the house for the purposes of declaration of inheritance tax, your best option is to get an appraisal of the property on the date of your uncle’s death, Szieber said.
Use the rated date of death value and the date of death of the values of your uncle’s other assets, you – or more likely, a tax specialist such as an accountant – will be able to prepare and file the inheritance tax return and, once taxes owed paid, to get the waiver, he said.
If the house has already been sold, you can provide the settlement agent / title company with the waiver to get the escrow release, he said. If it has not been sold, issuing the waiver will allow you to completely avoid a receiver.
“If the sale of the property took place before the filing of the inheritance tax return, a secondary option is to use the purchase price as the value on the inheritance tax return, provided the sale is a transaction arm’s length, ”Szieber said. .
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Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly electronic newsletter.