When Are Taxes Due on the Sale of Inherited Real Estate in North Carolina, and Who Pays Them?

1. Detailed Answer

When you sell inherited real estate in North Carolina, you may face two main types of tax: federal capital gains tax and North Carolina income tax on the gain. Generally, you pay taxes in the year after the sale and report them on your annual tax return. If a personal representative or executor sells the property on behalf of an estate, the estate itself may pay or withhold taxes and then distribute net proceeds to beneficiaries.

Federal Capital Gains Tax

You compute your gain by subtracting the stepped-up basis (fair market value at the decedent’s date of death) from the sale price, minus selling expenses. You must report that gain on your Form 1040 in the year you close the sale. Federal taxes on capital gains are due by April 15 of the year following the sale, unless you file for an extension.

North Carolina Income Tax

North Carolina treats capital gains as ordinary income. You report them on your NC D-400 individual income tax return. You file and pay by April 15 under N.C. Gen. Stat. § 105-134.6. If the seller is a nonresident, the buyer must withhold 2.25% of the sales price and remit it to the Department of Revenue under N.C. Gen. Stat. § 105-163.13A. The withholding ensures North Carolina collects tax on gains from property located here.

Estate Sales and Form 1041

If the estate sells the property, the personal representative files a federal Form 1041 (U.S. Income Tax Return for Estates and Trusts) by April 15 of the year after the sale. The estate pays any tax due at the estate level. Once distributions pass to beneficiaries, the estate issues Schedule K-1. Beneficiaries report their share of income on their own returns.

2. Key Takeaways

• Due Date: Federal and state taxes on gains are due by April 15 following the sale year.
• Who Pays? Individual heirs pay on their 1040/D-400 if they sell directly. Estates pay via Form 1041 when the personal representative sells.
• Basis Rule: You use the fair market value at death as your cost basis, reducing taxable gain.
• Nonresident Sellers: Buyers withhold 2.25% of the sale price under N.C. Gen. Stat. § 105-163.13A for nonresident income tax.
• Report Forms: Form 1040 for individuals, Form 1041 for estates, and NC D-400 (or NC 41 for estates).
• Statute References:
  • N.C. Gen. Stat. § 105-134.6 (resident rates): ncleg.gov/GS_105-134.6
  • N.C. Gen. Stat. § 105-163.13A (nonresident withholding): ncleg.gov/GS_105-163.13A

Need Help with Your Inherited Property Sale?

Selling inherited real estate comes with filing deadlines and withholding rules. A mistake can cost you time and money. Pierce Law Group has experienced attorneys ready to guide you. Contact us today at intake@piercelaw.com or call (919) 341-7055.