“My wife inherited a home six months ago and moved in. We don’t really like the neighborhood and would love to sell and move now. But her dad paid next to nothing for the house, so we have to wait until we’ve been here two years or we’ll pay taxes on the sale, correct?”
You’re referring to the IRS 121 homeseller exclusion. If you’ve owned and lived in the home for at least 2 of the past 5 years, singles can exclude and pay no income tax on 250K of gain. Couples can exclude 500K.
However, most (or all?) of my clients who inherited a home got what is called “stepped up basis”.
Investopedia.com definition of ‘Step-Up In Basis’:
“The readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset.”
This means in determining your gain, the IRS treats it like you bought the home for its value on the date the person passed away. What the person who left it to you paid is no longer relevant.
Bottom line is you probably will have little or no taxes to pay.
DISCLAIMER: This is my “real estate agent opinion.” I am NOT a tax expert. Please see a tax professional. If you don’t know one, call me and I’ll refer you to someone I know and trust.