Tax on an inherited property

[cindybarrett334]

My mother passed away in January 2023.  The house went through probate and the title passed to myself and a sibling in March 2023.  The house was sold and settled May 2023 for 145,000.   Selling expenses were  approximately 17,000.  We split the proceeds.  The total estate was less than 300,000 and all concerned live in Ohio.  Do you foresee any tax liability--I am trying to decide on an IRA withdrawal this year.  Thank you.

[LoriC17]

Hello,

For inherited property you will have what is called a stepped up basis. This would be the fair market value of the home at the time of death. To figure your gain or loss you would take that value then subtract the sales price less the sales expense.   You would only be responsible for reporting your half of the sale on your return. 

[cindybarrett334]

I have been reading that the IRS accepts the selling price as the cost basis if the sale occurred within the the year of the owner's passing.  With closing costs and  repairs, this would almost always result in a loss.  Is this true?  Thank you.

[LoriC17]

The value used per IRS standards should be the fair market value at death.  The executor of the estate can also value at an alternate valuation date. 

I am attaching a link from the IRS website.

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritan...

[tagteam]

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@cindybarrett334 wrote:

I have been reading that the IRS accepts the selling price as the cost basis if the sale occurred within the the year of the owner's passing. 

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Whatever you read is not accurate. The IRS is not required to accept anything less than an appraisal from a certified real estate appraiser. 

Also, per Section 2032, an alternate valuation date can only be used if that date results in both a reduction in the value of the gross estate and a reduction in the tax liability of the estate (for estate tax).

[cindybarrett334]

So what I need to do is get an appraisal for the value in January, the date of her death?

[LoriC17]

You can either get an appraisal or can even speak with local real estate agents. If the property value has been adjusted lately that also can be starting point.

[LoriC17]

Also you can research property on county website ( may be a reduced value) and compare to historical values on Zillow.

[tagteam]

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@cindybarrett334 wrote:

So what I need to do is get an appraisal for the value in January, the date of her death?

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Yes, and that would be the preferred approach with respect to IRS standards.

[cindybarrett334]

The real estate agent says she believes the house would have been appraised for at or above 145,000, the selling price of the home.  But then there were 17,000 in closing costs in expenses, which would result in a loss on Schedule D.

[tagteam]

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@cindybarrett334 wrote:

..... there were 17,000 in closing costs in expenses, which would result in a loss on Schedule D.

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Which is fine and you can recognize that capital loss provided neither you nor your sibling lived there.

[cindybarrett334]

I lived there as my mother's caregiver since 2016 but did not own the house until it went through probate in 2023.

[tagteam]

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@cindybarrett334 wrote:

I lived there as my mother's caregiver since 2016 but did not own the house until it went through probate in 2023.

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I meant lived there after your mother's passing (when you actually owned the house).