I'm going to assume that nobody lived in the house after your mother in law died and that you inherited the house, fixed it up, and sold it.
"Do we have to pay taxes on the proceeds."
No you do not pay taxes on the proceeds, but you might have to pay taxes on the gain on sale, (if you in fact sold at a gain.)
Inherited assets typically get a "stepped up" basis at the date of death. That amount would be your starting basis. The roof and repairs can be added to that initial basis and the new basis would be subtracted from the net proceeds to determine gain or loss.
The realtor's fee can be deducted as an expense of sale or a reduction of proceeds in coming to a determination of gain or loss.
You'll use the "Stocks, Mutual Funds, Bonds, Other" interview, telling TurboTax that you did not receive a 1099-B and identifying the type of investment as "Everything else". Enter the sales information, tell TT that you "inherited" the property and the date of inheritance. TurboTax will ask for the FMV of the property. You'll just have to "bundle" the roof and repairs into the actual FMV at date of death; TurboTax doesn't really have an "investment house" interview.
The resulting gain or loss will be long term irrespective of how long you actually owned the house.
Tom Young
