Investors & landlords

@ilovetaxes

TO READERS IN GENERAL, SEE WHAT FOLLOWS AT Inherited House previously Personal Residence of Decedent is sold by the Beneficiary or Heir - and the attachment pdf.

@ilovetaxes Read what follows as it describes the general conditions that apply to a beneficiary receiving the inheritance of a Decedent's house.   See the attachment on how to enter in to TurboTax. 

The inheritance to the three siblings does not result in a Form 1099-S as there is no sale immediate upon the death of your parent nor upon transfer of ownership in thirds to each of you. In your specific case, unless the deed is immediately titled in each of the three names, there will be no Form 1099-S reported unless you formally sell a share in the house to each sibling, in which case each sibling has the obligation to file as described here, but each dividing the selling price and the total selling expenses by three - that is reporting the respective third of net proceeds.  Note that each will then have to report the capital gain or capital loss as described.  This would be the simpler case for you in one way but not another.  If you were not becoming the owner/occupant, then you, and they, would report the effective sale as indicated in the attachment, with the numbers reported being 1/3 each.

However, since you are "buying" the shares of the house from your siblings and IF you will be the only named party on the Form 1099-S when you subsequently sell the house in the future, then the issue is more complex because you and they probably have different personal tax situations.  Most simplisticly, your siblings have a right to the 1/3 of the net proceeds.  In that case, when you at some point in the future sell the house, your cost basis would still be the FMV as of the date of your father's death.  The question between you and your siblings should be if there is a need to adjust for the implicit fact of imputed gain or loss that will at some time in the future be your liability or your write-off. It's complicated! You will need to discuss this with your siblings to reach an amicable agreement as to the amount that you and they recognize as the selling price of the share.
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Inherited House previously Personal Residence of Decedent is sold by the Beneficiary or Heir

Two Common and Different Tax considerations of which to be aware and one rare tax consideration as well:

1. Inheritances (or Gifts) are Not Subject to Income Tax. The recipient (Heir or Beneficiary) has no income tax liability in obtaining the house.
   
   
2. When sold, if the house has never been subsequently occupied by the beneficiary, then the house is not a personal residence but an investment property.  The sale is typically (supposed to be) reported by the real estate broker or conveying attorney on Form 1099-S, showing only the gross proceeds of the sale.
   See the attached PDF File to see how to report this in TurboTax.  Note that as investment property, there is no personal residence capital gain exclusion, and a net capital loss or a net capital gain is reportable, depending on whether or not the net proceeds are greater than or less than the inherited value of the house at date of death (the "Fair Market Value" or "FMV").
   ATTACHMENT: 2019 Sale of Decedent's House by Benficiary - LOSS or GAIN Scruffy.pdf
   If the house has been subsequently occupied by the beneficiary and becomes the beneficiary's personal residence, then the allowable capital gain exclusion on the sale of a personal residence ($250.000/$500,000) may apply but no capital loss can be reported whereas a capital gain after exclusion must be reported.
   
   
3. Rare circumstance:
   Six states which are listed below collect an inheritance tax from the beneficiary if residency applies and relationship is as stated in the conditions for taxability at the state level, and two of the states listed below collect both an estate tax and an inheritance tax:
   -   Iowa 
   -   Kentucky 
   -    *Maryland 
   -   Nebraska 
   -    *New Jersey 
   -   Pennsylvania
             * State collects both estate and inheritance tax