
If you’re reading this blog post, there’s a good chance you’ve recently inherited a home. First, let me extend my condolences. Losing a loved one is a difficult experience, and dealing with the inheritance of property on top of everything else can feel overwhelming.
But don’t worry—you don’t have to make any decisions today. Take a deep breath, give yourself some time, and when you’re ready, we can walk through the important steps you need to take. There are three major factors you should consider when you inherit a home, and I’m here to break them down for you:
1. What Happens to the Mortgage?
If the property you’ve inherited has a mortgage, one of your first tasks is determining what to do with it. Luckily, you have three options:
- Assume the mortgage if you plan to keep the home.
- Refinance the mortgage in your own name, possibly at a different rate.
- Pay off the mortgage balance, sometimes using other estate assets.
However, if the home has a reverse mortgage, things get a bit trickier. A reverse mortgage balance becomes due immediately upon the homeowner’s passing. This means that you will either need to sell the home or pay off the balance in order to keep it. It’s important to carefully assess your situation and options.
2. Inheritance Tax in New Jersey
The good news is that New Jersey does not charge an inheritance tax if you’re an immediate family member—spouses, children, grandchildren, and parents are exempt. However, if you’re inheriting the property as a sibling, niece, nephew, or non-relative, you may owe an inheritance tax, which can range from 11% to 16% depending on the property’s value.
3. Estate Taxes and Capital Gains
New Jersey also does not have an estate tax—this was repealed in 2018. On the federal level, estate taxes only apply to very large estates, those valued over $13.6 million in 2024. Additionally, if you inherited the home from a spouse, no federal estate tax will apply at all.
Most people won’t need to worry about estate taxes, but it’s always a good idea to confirm with a professional, especially if the estate is significant.
Now, if you decide to sell the inherited home, capital gains taxes come into play. But don’t worry—there’s a tax benefit here too! You’ll benefit from a step-up in basis, meaning you won’t be taxed on the entire increase in home value since its original purchase. Instead, you’ll only be taxed on any gains above its value at the time of inheritance.
Even better, if you decide to live in the home for at least two years before selling, you can take advantage of the regular capital gains exclusion:
- $250,000 if you’re single
- $500,000 if you’re married
This is a significant tax advantage if you’re considering making the inherited home your primary residence before selling it.
Final Thoughts
Inheriting a home comes with important decisions that can have a financial impact on your future. Whether you’re considering keeping the home, renting it out, or selling it, it’s essential to understand the implications of your options. Knowing your options and understanding the financial consequences can help you save money and make the best decisions for your situation.
If you have any questions or need guidance, please reach out! You don’t have to navigate this process alone. Whether you need help with the real estate side of things or advice from an accountant or financial advisor, I’m here to assist you. I recommend connecting with a real estate agent, accountant, and financial advisor to ensure you make the best decisions regarding your inherited property.
For more information, I’ve created a detailed video explaining these topics in full. Click here to watch the full video on my YouTube channel.
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