I inherited Dad's IRA and the house in Virginia. What has to happen this year?
This page walks through an inherited IRA, an inherited Virginia house and the state's taxes on both, and what has to be done before December 31.
It's October. Your father died in the spring and left you his IRA and the house in Fairfax County. The attorney is handling probate. The custodian keeps writing about a "beneficiary election." Your brother says you have ten years and nothing to do yet. A neighbor says to sell the house fast or the tax will eat it. Each page you found covers one piece. Your brother and your neighbor are each half right, because the account and the house run on different schedules. The account's required minimum distribution is the amount the rules say must come out in a given year, and this year it can include the amount your father hadn't taken yet. The house's tax starts from its basis, its value on the day he died, so a house worth $500,000 then has a $500,000 basis. We'll take the account, the house and Virginia in turn, on one set of numbers: a $500,000 Virginia house that passes by will and later sells for $530,000 with $20,000 of selling costs, a father who turned 73 in 2024 and died in the spring of 2026 at 75, and his adult child as heir. The probate filings and any trust are your attorney's, and how to spread the withdrawals is your advisor's. We don't know your numbers, but you'll see where this is going.
Key points
- An adult child more than ten years younger than the parent has ten years to empty an inherited IRA. The deadline is December 31 of the year of the tenth anniversary of the death.
- If the owner died on or after his required beginning date, a withdrawal is due every year. It starts the year after the death.
- An inherited house's basis is its value on the day of death. A sale counts as long-term even within a year.
- Virginia has no estate or inheritance tax on deaths today. Its probate tax is 10 cents per $100 once the estate is over $15,000.
- In the example, the house sells for $530,000 with $20,000 of costs. The gain is $10,000, and it is long-term.
Which heir the rules think you are
The rules for an inherited IRA start with who you were to the person who died. A surviving spouse, the owner's own minor child, a disabled or chronically ill person, or anyone not more than ten years younger than the owner is an eligible designated beneficiary, and gets a longer road. You're none of those.
For you, the ten-year rule applies: the account must be empty by December 31 of the year that holds the tenth anniversary of the death, so a death in 2026 means empty by December 31, 2036. Your brother has the ten years right.
Whether anything is due sooner depends on your father's age. The required beginning date is when an owner must start taking money out, and for people reaching it now it's April 1 of the year after they turn 73. Your father turned 73 in 2024, so his date was April 1, 2025, and he died after it. When the owner died on or after that date, the final regulations, which apply from 2025, require a distribution every year starting the year after the death, with the whole account out by the tenth year's December 31. Had he died before that date, nothing would be due until year ten.
The custodian's letters are probably about this year. If your father hadn't yet taken his amount for the year he died, you are responsible for taking it. Aim for December 31. If you miss that date, the IRS automatically waives the excise tax as long as you take it by your 2026 return's due date, including extensions.
So do you have to take money out this year? Only if your father hadn't taken his 2026 amount. From 2027 there's an amount every year, and the account is empty by December 31, 2036. The urgency your neighbor felt belongs to the account, not the house. A spouse's road and a Roth's differ, and the questions at the end take up both.
What each withdrawal costs and what a missed one costs
Each taxable dollar out of an inherited traditional IRA is income on your own return the year it comes out. There's no 10 percent early withdrawal penalty for a beneficiary at any age. Virginia starts from your federal adjusted gross income and has no subtraction for inherited IRA withdrawals, so each taxable withdrawal is Virginia income too. For 2025, Virginia's top rate is 5.75 percent on taxable income over $17,000. Virginia's higher standard deduction, $8,750 single and $17,500 joint, applies for 2025 and 2026 only. It is scheduled to fall back to $3,000 and $6,000 after 2026.
A required amount you don't take carries an excise tax on a missed distribution, a separate tax of 25 percent of what you should have taken. It drops to 10 percent if you take the missed amount within the correction window and file a return reporting the reduced tax. The window closes at the earliest of the date the IRS mails a deficiency notice, the date it assesses the tax, or the last day of the second tax year after the year of the miss. The tax goes on Form 5329, filed with the return for the year of the miss.
For 2021 through 2024, the IRS waived the excise tax on these annual distributions for heirs whose owner died in 2020 to 2023 on or after the required beginning date. No waiver of the yearly amounts has been found for 2025 or 2026, so that relief appears to have ended with 2024.
A missed year has a price, then, and a smaller one if you fix it quickly. How much to take each year is a question for your financial advisor.
The house runs on your schedule
Your basis in the house is its fair market value on the day your father died, or on a later alternate valuation date if the estate's representative chose one. The rise in value while he owned it isn't taxed to you.
When you sell, the gain is the price, less the selling costs, less that basis, which on the running numbers is $10,000. It's long-term even if you sell within a year, because inherited property sold within a year of the death is treated as held more than a year. Your neighbor assumed you'd be taxed from what your father paid for the house, and you aren't.
The home sale exclusion leaves up to $250,000 of gain untaxed, or $500,000 for a married couple filing jointly, for an owner who owned and lived in the home for two of the five years before the sale. A surviving spouse may count the late spouse's time there. The IRS publication on home sales has no rule letting a child count a parent's years, so as it reads, a child counts only their own years there.
A loss on property held for personal use isn't deductible. An inherited house is different if you never use it yourself and put it up for sale: the loss is then generally deductible, as a capital loss. Living in the house, or renting it cheaply to family, can cost you that deduction.
Will you owe tax on the whole sale price? No. You're taxed only on the gain: the amount the house rose in value after the day your father died, less your selling costs. Unlike the IRA, the house has no tax deadline. As far as the tax rules go, a sale this year, next year or later is long-term.
Virginia at the courthouse
Virginia has no estate tax or inheritance tax on deaths today, apart from a narrow exception for certain remainder interests. What the clerk charged, when the will was offered for probate, was the probate tax: 10 cents for every $100, or part of $100, of the estate's Virginia probate value, charged on the whole value once the estate is over $15,000. A county or city may add one third of the state tax. Property held jointly with right of survivorship isn't counted.
On the running numbers, with the house as the only asset in probate, that's $666.67 where the local tax applies. Your father's IRA passes to you as named beneficiary rather than by his will, so it isn't counted either. That courthouse charge is the whole of Virginia's tax on the death itself.
Virginia does care when a sibling in another state sells. A gain from selling Virginia real estate is Virginia income, and a nonresident whose Virginia adjusted gross income is at or above the filing threshold files Form 763, the nonresident return. For 2025 the threshold was $11,950 single.
Virginia's part, then, is a small courthouse tax, income tax on the IRA withdrawals and on the house's gain, and a filing for a sibling selling from out of state.
Two schedules on one inheritance
The calendar decides only for the account. The house has a basis set on the day he died, a long-term gain from the first day, and no deadline. The table puts the two side by side.
| Inherited traditional IRA | Inherited house | |
|---|---|---|
| What sets the tax | Your father's age and who you are to him | Its value the day he died |
| What is taxed | Each taxable dollar you withdraw | The gain over that value |
| When | The year each withdrawal comes out | The year you sell, long-term |
| On which return | Your own | Your own, on Form 8949 and Schedule D |
| Virginia's part | Virginia income, top rate 5.75 percent | Probate tax. The gain is Virginia income for a resident or nonresident heir. Form 763 for a nonresident seller |
| The deadline | Aim for December 31, 2026 for a missed 2026 amount. No excise tax if it is taken by your 2026 return's due date, including extensions. Yearly from 2027. Empty by December 31, 2036 | No tax deadline |
| What you control | How much above the required amount, and when | The timing of a sale is set by the estate and the heirs, not by the tax rules |
A worked example on one set of numbers
Your father turned 73 in 2024, so his required beginning date was April 1, 2025. He dies in the spring of 2026 at 75 and leaves you, his adult child, his traditional IRA and a $500,000 Virginia house that passes by his will.
At the courthouse, if the house is the only asset in probate, the state tax is $500,000 divided by $100, times 10 cents, or $500. A locality that levies the local tax adds $166.67, for $666.67 in all.
For the house, your basis is $500,000, assuming no alternate valuation date and no Form 8971 value. Assuming the house has already passed to you, you sell for $530,000 and pay $20,000 of selling costs. The amount realized is $510,000 and the gain is $10,000, long-term.
For the IRA, his 2026 amount, if he hadn't taken it, comes out by December 31, 2026. If it's later, there's no excise tax as long as it's out by your 2026 return's due date, including extensions. An amount comes out each year from 2027, and the account is empty by December 31, 2036. Each taxable withdrawal is federal income and Virginia income. We can't put a dollar figure on it without the balance and your age.
So the deadline running now is his 2026 amount: aim for December 31, with your 2026 return's due date, including extensions, as the backstop. What this page can't know is whether he took this year's amount, your other income, or what the will says.
Our personal advisory work plans what an inherited account or property means for your taxes, and we do the return last. The executor's duties, the probate filings and any trust are your attorney's. How to spread the withdrawals is your advisor's.
If this looks like your situation, the introduction call is where you tell us about it.
My sister lives in North Carolina and we're selling the house. What does she have to do?
Her share of the gain is Virginia income. If her Virginia adjusted gross income is at or above the threshold, she files Form 763. Virginia doesn't withhold tax when a nonresident sells Virginia real estate. Instead, she registers with the Virginia Department of Taxation on Form R-5 when title transfers. The person handling the closing collects the form, and files it for her if she doesn't. If her gain isn't subject to Virginia tax, she can give the closing agent Form R-5E, the exemption certificate, instead.
I'm the spouse, not the child. What's different?
A spouse can treat the IRA as their own, roll it into their own IRA, or stay a beneficiary. If the owner died before his required beginning date, a spouse who is the only beneficiary can wait to start until the year he would have reached it. If you're under 59½ and treat it as your own, withdrawals before that age may face the 10 percent additional tax.
Dad's account was a Roth. Does any of this change?
Yes. An inherited Roth follows the rules as if the owner died before his required beginning date. For an adult child, that means no yearly amount in years one through nine and an empty account by the end of year ten. Withdrawals are tax free once five years have passed from the first year a contribution went into his Roth.
What if I already missed December 31?
The tax is 25 percent of the amount you missed. It drops to 10 percent if you take that amount within the correction window described above and file a return reporting the reduced tax. It's reported on Form 5329, and for a reasonable error you're fixing you can ask for a waiver. If the missed amount is your father's year-of-death amount, the tax is waived automatically if you take it by the due date of your return for the year he died, including extensions. The IRS waived it on the yearly amounts for some heirs for 2021 through 2024, and no waiver of the yearly amounts has been found for 2025 or 2026.
Could you bring the custodian's letter and your father's date of death to an introduction call, so we can look at which deadline is running for you?
Schedule an introduction call. We will learn about your situation and you decide if we are the right fit.
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