Capital Gains Question on Inherited Home sale, not rented, or lived in

[bonrea2000]

My Father-in-law passed away in 2010 and my wife and her sister and brother just sold the home in 2021.  The property was in all of their names. The money from the sale of the house was dispersed evenly amongst the four.  They owned it for almost 11 years. Never lived in it and never rented it. They just kept it up. Would this be considered a sale of a second home, inheritance or....?  I don't know how to report the income here.

[tagteam]

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@bonrea2000 wrote:

They owned it for almost 11 years. Never lived in it and never rented it.

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The classification of the property would be dependent upon the intent of the parties. 

However, if there had been no attempts whatsoever to rent the property it would not be considered rental real estate.

If the parties were holding the property for future appreciation, it could be considered to have been held for investment purposes but, if there was a gain on the sale (clearly likely and implied by your question), then it makes little difference whether the property was held for investment or personal use (such as a second home).

[tagteam]

One of your statements needs clarification; you stated the proceeds were "dispersed evenly amongst the four" but only named three individuals. 

[bonrea2000]

Yes sorry. It is only three of them. Dispersed amongst the three(3) of them.

[tagteam · Accepted solution]

They will each have to report their share of the gain on the sale (long-term capital gain).

[Hal_Al]

If it was sold for a gain, it doesn't matter what you call it, investment property or a 2nd home.  Either way, you have a long term capital gain.  Each sibling will report his/her share of the gain on his tax return.  You cost basis is the Fair market value (FMV) in 2010.

If it was sold at a loss, a capital loss on investment property is deductible. A capital loss on personal use property (e.g.  2nd home) is not.  So it depends on how the property was used for the last 11 years.  If it sat vacant, it is considered investment property. 

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