@hogebdg wrote:
The house has been empty and no one else has lived in it. It does not generate income
I have not specifically researched the question of whether you can treat an inherited home as investment property and deduct a loss (and yes, this is not "technically" inherited, but the point is the same.). But I would point out that generally when it comes to laws and courts, if there are court cases that decide one way (case law), and a lawyer's opinion that goes the other way, future courts will usually follow previous court decisions unless there has been a change in the laws or a major change in legal thinking. I would also question the principal that it must be income-producing property to deduct a loss, since you can deduct investment losses on many other types of property that don't generate income (such as vacant land, precious metals, and so on). Nevertheless, if you have a substantial loss you want to deduct, you should consult your own tax specialist and pay for a professional opinion that they will defend for you if you are audited.
In general answer to your question:
a. If you want to deduct the loss as investment property, you must report the sale.
b. If you received a 1099-S, you must report the sale, regardless of whether you want to report a loss or treat it as a non-deductible loss on personal property.
c. If you did not receive a 1099-S and you want to treat the loss as a non-deductible personal property, then you don't have to include it on your tax return.
