Both the inheritance rights or the real property would be investment property to your son. They would both be reported as such on schedule D on the federal tax return as the sale of investment property. His cost basis would be the same amount you are paying him so either way you do it he won't have any net income to pay taxes on. So, you should consummate the transaction which ever way is easiest for you.
The cash that you transfer would not have to be reported on his tax return, as that is an inheritance, as opposed to the property sale, which is the sale of inherited property. You report that as the sale of investment property in TurboTax.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
