Capital Gains Tax in Memphis: How Selling Your Mom’s Old House Can Benefit You

Selling your mom’s old house in Memphis can feel overwhelming. Along with the memories tied to the home, you also need to understand how the capital gains tax in Memphis works. The profit you make from the sale—known as capital gains—can affect how much money you actually keep. In this guide, we’ll explain how selling an inherited or old family home impacts your taxes, and how you can make the most of the sale.

Let’s go step by step and make this simple.

What Are Capital Gains?

Capital gains are the profit you make when you sell your old mom’s house or other property for more than it was bought for.

For Example, if the cost of old mom’s house in Memphis was $70,000 a year back, but now you can sell it for $170,000, the gain is $100,000.

This is what the IRS capital gain looks at when figuring out your taxes.

How Capital Gains Tax Works on an Old Family Home

The taxes depend on your situation:

• Inherited house in Memphis: If you inherited the home after your mom passed away, you usually get a “step-up in basis.” This means the value resets to the market price when you inherited it, so your taxable gain may be much smaller.
• Rental property: If the house was rented out, you’ll also have to consider depreciation (the tax write-off taken while renting).
• Primary residence: If you lived in your mom’s old house, you may qualify for a tax break that excludes part of the profit from taxes.

Short-Term vs. Long-Term Capital Gains

The IRS looks at how long you’ve owned the house:

• Short-term: Owned for less than a year. Taxed like regular income (usually higher).
• Long-term: Owned for more than a year. Taxed at lower rates—commonly 0%, 15%, or 20%.

For most people selling an inherited property in Memphis, TN, it usually counts as long-term capital gains.

Tax Breaks and Deductions That Can Help

There are ways to lower the amount of tax you owe when selling your old family home in Memphis:

• Primary residence exclusion: If you lived in the house for at least 2 of the last 5 years, you may exclude up to $250,000 of profit ($500,000 for couples).
• Selling expenses: Realtor commissions, attorney fees, and closing costs reduce your taxable profit.
• Home improvements: If your mom added a new roof, upgraded the kitchen, or built an extra room, these improvements raise the property’s value basis and lower your taxable gain.

The 1031 Exchange Option

Mistakes Families Often Make

Here are a few common mistakes to avoid when selling an inherited house in Memphis:

• Forgetting the step-up in basis on inherited homes.
• Not adding in selling expenses like closing costs.
• Mixing up rental property rules with personal home rules.
• Missing the IRS deadline for a 1031 exchange.

How to Figure Out Your Capital Gains

Here’s a simple way to calculate your profit:

1. Start with the selling price.
2. Subtract selling costs (like realtor fees and closing costs).
3. Subtract your adjusted cost basis (this could be the inherited value, original price, or improved value).
4. The result is your capital gain.

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Do Tennessee State Taxes Apply?

Here’s some good news: Tennessee does not charge a state income tax. So if you’re selling a house in Memphis, you only deal with federal capital gains tax—not state taxes.

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Conclusion: Selling Your Mom’s House the Smart Way

Selling your mom’s house in Memphis is a big step, both emotionally and financially. While the memories remain priceless, it’s important to understand capital gains tax in Memphis so you don’t lose more money than necessary.

With the right planning—using exemptions, adding selling costs, or considering a 1031 exchange in Memphis real estate—you can keep more of the profit.

The key is to know the rules, plan carefully, and get help from a tax professional if needed. That way, selling your mom’s old house can truly benefit you and your family.

Frequently Asked Questions (FAQs)

1. Do I have to pay taxes when selling an inherited house in Memphis?
Yes, but thanks to the “step-up in basis,” the taxable gain is often much smaller than you might expect.

2. How much is the capital gains tax in Memphis, TN?
Tennessee doesn’t charge state income tax, so you’ll only pay federal capital gains tax. The rate depends on your income and whether it’s short-term or long-term.

3. Can I avoid capital gains tax when selling my mom’s house?
You may qualify for exemptions, deductions, or use a 1031 exchange to defer taxes if you reinvest in another property.

4. What happens if the house is rented out?
If it were a rental, you’d also need to account for depreciation recapture, which can increase your tax bill.

5. Is a 1031 exchange a good option in Memphis?
Yes, many Memphis property owners use a 1031 exchange to roll the profits into another property and delay taxes.