Capital Loss on Inherited House

Forum|Forum|1 year ago
February 10, 2025
1 reply
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Hello, My wife inherited a house from her mother and sold the house at a loss in 2024. I know that for primary home and second home, If the total of cost basis plus selling expenses are higher than the sales price, we need to zero the loss out and cannot take the loss on selling the house. But for inherited house, can we report loss on the selling the house and use the loss to offset capital gains on other assets such as stocks reported on Schedule D and form 8949? If we can report a loss (instead of zero), is there a limit on the loss on the line item for the sale of this inherited house? I read the maximum capital loss is $3,000. Is this amount the net of all the capital gains and losses on all the assets? So if the loss on the inherited house is $6,000, and the capital gains on other stocks and assets are $10,000, do we subtract the $6,000 loss from the $10,000 capital gains, and report a net capital gain of $4,000?

Also, how do I input the loss in TurboTax? Where is the section to input inherited house in TurboTax? And what is the code to put into column F of form 8949 ?

MindyB

Level 13

It depends. ‌An inherited house is considered investment property and you can deduct the loss on the inherited property, but only if there was no personal use after your mother-in-law passed away - it was simply held between inheritance and sale). The sale also needs to have been made to an unrelated party in an arm's length transaction.

The $3,000 you are referring to is the amount net capital losses may be used to offset ordinary income. ‌In your example, yes, your gain is $4,000 and the $3,000 limit doesn't apply.‌ If we use your figures, but imagine there was $0 capital gain, you could use $3,000 of the $6,000 loss to offset this year's ordinary income, and the remaining $3,000 would be a capital loss carryover. ‌The carryover can be carried forward to future years to offset any capital gains and ordinary income.

Here's how to report this in TurboTax Online:

Navigate to Wages & Income > Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) > Add/Edit
Add Investment
Choose "Enter a different way"
Choose Investment type of Other
Add a description
You will be asked what type of investment, choose "other". ‌Also, indicate this was inherited.
Proceed to enter the rest of the information.
Column (f) can be left blank

syoung123Author

Level 6

Thank you for your reply. To clarify:

1. The inherited house was sitting empty from the day my wife's mother passed away and date of sale. The only thing is my wife and her sister spent one or several nights there at different occasions when they cleared out the contents inside the house, cleaned and repaired. Does it considered as "personal use" and therefore cannot deduct the loss?

2. For my example of $6,000 loss, it the house is qualified as investment property (that #1 above is ok for them to spend some nights there for cleaning and repairs), the loss can be applied to capital gains as well as ordinary income? My earlier example was other capital gains were $10,000, house loss is $6,000, so the overall capital gains would be $10,000 - 6,000 = $4,000. But if the capital gains of other assets reported on 8949 are only $5,000, the net loss ($5,000 - 6000 = -1,000) o $1,000 can be applied to reduce the other income such as wage, interests and dividends, so no carryover to next year is needed. I know TurboTax woud calculate all these, but I just want to understand these numbers independently.

3. With the TurboTax input, I take it TurboTax would put the "description input = inherited house" on form 8949? Would TurboTax also out a code (which one) on column F, or would it be blank like you reply seems to indicate?