There is one important thing to note here. When you inherit a house the basis for computing capital gains is "stepped up" to the market value at the time of death. In other words when you sell an inherited house you compute the capital gains by subtracting the value at which it sold minus the stepped up basis (the market value at time of death) minus any fix up expenses,i.e., Capital gains=Sale price - stepped up value - fix up expenses. From what you have described if you do that math you get a negative number which means you owe zero capital gains. We reported the capital gains on the sale of our vacation home (which we never used or claimed as a rental which makes a big difference to the IRS and how you compute capital gains) on Schedule D Part II Line 10 "Long-term Capital Gains and Losses". We put down the sale price as $255000 in column (D) "Proceeds (Sales Price)" as that was the amount on the 1099 we received from the title company when we sold it and then put $225708 (which is the price we paid for it) in column (E) "Cost or other basis" and then put -$26538 (i.e., a negative number) for the expenses we had fixing it up in column (G) "Adjustments to Gain or Loss". So we had $255000 - $225708 - $26538=$2754 so we put $2754 in column (H) "Gain or Loss". These same numbers were also entered on Form 8949 Part II and we checked box F "Long-term transactions not reported to you on Form 1099-B". I am not sure what you meant by "tod" in your note. I am not 100% sure we did it the correct way but I believe we did. Good luck.
