Reporting Gains of Sale of a Home under Virginia's Transfer on Death purchase

[jeffrey-davis4]

My father-in-law passed away in April, 2024. He transferred ownership of his home to my wife and her brother using Virginia's Transfer on Death (TOD) designation in March, 2024.  When proceeds from the sale of the home were dispersed between my wife & brother-in-law upon settlement in May, 2024 the realty company sent us an IRS 1099-S form. What (if any) additional paperwork do my wife & I (filing jointly) need to acquire to properly file our taxes for 2024 to take advantage of the tax benefits of the TOD.

My father-in-law had clear title on the home; He purchased it in 1972(?) for $57,000; it was sold for $610,482. My wife's 1099-S was for $305,000.  What is the likely federal & state tax liability from the transaction?

Jeff

[NateTheGrEAt]

Jeff,

It's possible that no tax would be owed. Please take a look at the "inheritance" section of this article. It explains that if the asset was received by inheritance, your wife's basis would be her share of the fair market value on the date that her father passed away. Since it sounds like the property was sold shortly thereafter, if you can obtain documentation that the property was worth the same amount it was sold for (or more) on that date, then there would be no capital gain and no tax owed. 

I hope this information is helpful. 

[tagteam]

You should consult a local tax professional. 

See https://taxexperts.naea.org/expertdirectory

However, you need to make a determination with respect to the fair market value on the date of the passing of your father-in-law since that valuation will control basis and, as a result, the amount of gain.

I am sorry for your loss.