@B_Erlandson wrote:
One follow-up if you don't mind, but with the 1099S would that require filing both state and federal? I didn't see anything differentiate the two in the link provided.
The 1099-S will be sent to the IRS, so she needs to file a federal return so they have something to match up, even though she will report no taxable income from the sale. It is possible that she would not have to file a state return at that point, if she is below the state filing threshold for taxable income. In the future, the state may check their records against the IRS, see there was no taxable income, and so the state won't have reason to complain. However, for the extra filing fee ($25-50, depending on which Turbotax product you use and when you file) you would have piece of mind that, by putting down on paper that no tax is owed, there won't be misunderstandings in the future.
(Note that, as the only owner at the time of the sale, the entire gain is reportable by her, even though the 1099-S only shows half.)
(Also note that "proceeds" are never taxable, the gain is taxable. Gain is the difference between the adjusted cost basis and the selling price. If we took an extreme example and imagined the home was purchased for $100,000 and sold for $1 million, but the proceeds were only $250,000 because there was a previous mortgage or line of credit that was paid off, there would conceivably be up to $900,000 of capital gains. Your mother would have received a partial step-up in basis when her husband died, which will affect the gains calculation. Ask further if you want more explanation on this.)
