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Correct me if I'm wrong, but for paltry amounts there is no tax on inheritance, right? If someone's mom dies and left her three children her house, then they rent it out for a while, and now one of them is going to buy out the other two, the money these two receive is inheritance money and not taxable, right?

I don't think this is right at all. The one who buys out the other two has to pay a capital gains tax (if indeed there was a capital gain) based on the difference between the value of the property at the time he inherited it and at the time he sold it.

In this story there is no "inheritance money" -- the only thing that is inherited is the house, which the three brothers each owned 1/3rd of.

If everything you say had happened immediately upon inheriting the house, there would have been no tax due because there was no gain. But by letting some time pass (while the house was being rented out), the value of the house may have appreciated, in which case the brothers may have capital gains.

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