The three of you would split the loss and report it on Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets.
To calculate how much loss should be reported on Schedule D and Form 8949, you must first determine your basis in the home.
The basis of property inherited from a decedent is generally one of the following:
- The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return)
- The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the Instructions for Form 706.
In this case, it would probably be best to use the fair market value of the property on the date of the decedent's death ($208,220.21). You would then increase that basis by the cost of any capital improvements ($8284.19).
You would then report the sales price of $218,001.05 minus the cost of selling the home ($18,240.65) as the proceeds of the sale.
This results in a loss of $16,744. If you each are equal beneficiaries, you would each report a loss of $5,581.
Note: The maximum capital loss you can claim per year is $3,000. If you do not have other capital gains for this loss to offset, the amount of net loss over $3,000 will roll forward to your 2020 tax return.
For additional information on basis of assets, please see Publication 551.
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