Deductions & credits
Yes, you may add the inheritance tax to the adjusted basis of the house according to PK as reported in this post. You will need to enter this as an investment sale and not as a sale of your own personal residence. Here is how to report.
- Working in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
- Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
- Next click on “I’ll choose what I work on”
- Scroll down the screen until to come to the section “Investment Income”
- Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
- The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
- Since you did not receive a 1099-B, answer “no” to the 1099-B question
- Now you should see a screen like the one I listed below. What important is how you report how you received the investment, the proceeds, and the Fair Market value on the date of the inheritance plus the inheritance tax.
You are correct that you will not receive a capital loss for the sale. IRS is only interested in gains.
