More information is needed in order for you to be able to report this transaction correctly. I recommend that you seek legal advice.
When you inherit a home or a share of a home, the inheritance itself isn't taxable, but its subsequent sale is a taxable event unless you lived in the home and qualified for the primary residence exclusion. You would report your share of the gross proceeds of the sale as the selling price, and you would report your basis in the inherited home (typically the fair market value as of the date you inherited the property, normally the date of death) so that only the net gain is taxable.
Did either of your parents have wills or a trust? Just because you were told you would inherit the property doesn't mean that you inherited a share in it. You need to know when you acquired ownership in order to determine your basis in the property.
The fact that the property was a rental creates the need for more information. Did your parents report the property as a rental on their tax return? Did your father's estate file Form 1041 reporting the rental?
Did your sister report the property as a rental on her tax return? If you didn't inherit the property, did she gift you half-ownership? Generally, a taxpayer who acquires property by gift takes a basis in the property equal to the donor's adjusted basis in the property at the time of the gift (referred to as transferred or carryover basis).
Report the sale of an inherited home or home acquired by gift under Wages and Income. Scroll down the screen until you come to the section “Investment Income”
- Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ or click "Add Investment" if you have already worked on this section
- Continue. When you see a list of brokerages for import, click Enter a Different Way
- The next screen has a list of investment types. Click on Other / 1099-S, which includes homes that are not your primary residence
For more information on these topics, please see this IRS FAQ, and this one, as well as this TurboTax tips article on tracking the basis of a property.
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