Do I Have to Pay Taxes on a House I Inherited in NJ?

by | Apr 15, 2022 | Inheritance

If you have recently inherited a house in New Jersey, you may be wondering what the tax implications are.

Unfortunately, there is no easy answer to this question.

Every situation is unique, and the tax laws can be complicated.

In this blog post, we will do our best to break down the basics of inheritance taxes in New Jersey.

We will also discuss some of the exemptions that may apply to your situation.

Do you have to pay Inheritance Tax on a house in NJ?

If you’re inheriting a house in New Jersey, you may be wondering if you have to pay inheritance tax.

The answer is that it depends on the value of the property and your relationship to the deceased.

If the property is valued at less than $500,000 and you’re a spouse, child, or grandchild of the deceased, you’re exempt from inheritance tax.

If the property is valued at more than $500,000, you’ll have to pay inheritance tax on the portion that exceeds the exemption amount.

The rate varies depending on your relationship to the deceased, with spouses and children paying lower rates than other relatives.

However, even if you’re not related to the deceased, you may still be exempt from inheritance tax if you’re a domestic partner or the surviving tenant of a jointly owned property.

People are often surprised to learn that inheritance tax is not a federal tax, but is instead imposed by individual states.

Each state has its own rules about what types of inherited property are subject to tax, and the amount of tax that is due.

In New Jersey, inheritance tax is only imposed on real estate, such as a house or land.

In addition, there are certain exemptions that can apply, such as when the property is left to a charity.

As a result, it is important to consult with an attorney or tax advisor to determine whether any inheritance tax is due on a property that you have inherited.

elderly woman holding a small house

What are the inheritance tax rates in NJ?

The rate of inheritance tax varies from state to state, and in New Jersey, the rates are as follows:

  • If the value of the property is less than $675,000, there is no inheritance tax
  • If the value of the property is between $675,000 and $1 million, the inheritance tax rate is 11%
  • If the value of the property is between $1 million and $5 million, the inheritance tax rate is 15%
  • If the value of the property is more than $5 million, the inheritance tax rate is 16%.

How can I avoid paying taxes on inherited property?

One way to avoid paying taxes on inherited property is to give it away to a charity.

If you donate the property to a qualified 501(c)(3) organization, you can take a deduction for the full market value of the property on your taxes.

Keep in mind, however, that you can only take this deduction if you do not receive any benefit from the donation.

For example, if you donate a vacation home to a charity and then are able to use it for yourself, you will not be eligible for the deduction.

Another way to avoid paying taxes on inherited property is to sell it.

If you sell the property for less than its market value, you may be able to take a charitable donation deduction for the difference between the sale price and the market value.

You can choose to keep the property in the family by selling it to a relative for fair market value.

If you live in the property for two years before selling it, you may also be eligible for the capital gains exclusion.

Finally, you can avoid paying taxes on the inherited property by rolling it over into a qualified retirement account.

Final Thoughts

Inheriting a property can be a blessing or a curse, depending on your circumstances.

If you find yourself in the unlucky position of inheriting property in New Jersey that you cannot afford to keep, don’t despair!

There are ways to get rid of an inherited house without paying taxes.

Speak to an experienced NJ estate attorney who can help you navigate these tricky waters and come up with a plan that works for everyone involved.

If you’re interested in learning more about buying or selling a home in New Jersey, continue reading our other resources:

  1. Sell Your Inherited NJ House Fast
  2. Can I Sell My NJ House In Foreclosure?
  3. Can a Landlord Sell a House During a Lease in NJ?

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