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A house divided creates separate tax bills

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in Small Business Tax

Q. You stated that only one of the brothers inheriting a house is entitled to the home-sale exclusion. But isn’t that irrelevant since both brothers benefit from a stepped-up basis in the house? R.S.

A. No. The brother who is currently using the home as his principal residence will be able to exclude the tax on up to $250,000 of gain from the home inherited three years ago. While the other brother still benefits from a step-up in basis, he must pay tax on his share of the home’s appreciation in value during the past three years. According to the reader who posed the question, the gain should easily exceed $100,000. Tip: Home improvements can be added to your basis and thereby reduce any taxable gain from a sale.

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