My sister and I inherited mom’s house. Do we need to pay inheritance tax?

Q: My sister and I inherited my parent’s house and I have lived in it for the past 7 years since my mom died. We want to sell the house to a neighbor but her attorney says my sister and I must file an inheritance tax return and we will probably owe inheritance tax dating back to when my mother died. What do you think?

A: The attorney may be correct. Your parent’s home was probably jointly held by them by the entireties as is usually the case. When your father died, your mother inherited it from him by the law of entireties but was subject to the spousal inheritance tax rate of zero, so no inheritance tax was owed. Assuming you and your sister are the only children, you both inherited this house under your mother’s will or under intestate law from your mother. At the time of her death the house was most likely subject to inheritance tax which would have been due within 9 months of the date of her death. If that is the case, this tax and any interest that has accrued and possibly penalties are now owed. You should consult with an attorney to confirm this and to prepare a PA inheritance tax return using all available expenses as deductions. You will likely need to pay inheritance tax.