Inheriting a home

[sparkedup1744]

I live in Kentucky but inherited my mothers house in Illinois.  I sold the house at a capital loss.  Turbo Tax is wanting me to file a non resident Illinois state tax return.  I was told by my moms CPA I wouldn't have to file an Illinois return because there wouldn't be a capital gain.  So I'm confused.  I would hate to have to pay for another state if it's not necessary.  Need Help 

[MaryK4 · Accepted solution]

Your CPA is correct.  An individuals must file if they earned enough taxable income from Illinois sources to have a tax liability. Since you had a loss there is no Illinois capital income.   If you have it on your return, see How do I delete my state return in TurboTax Online.

[sparkedup1]

Thank you!  I just want to get this straight for sure.  When filling out turbo tax...the cost or other basis equals the FMV of the home at time of death?  The sale proceeds is the amount the home was purchased for(which happened to be the same as the FMV), minus all the deductions it costs to sell the home(from the Title company's settlement statement).  Is this correct?  So the sale proceeds would be the actual check received from the Title company? I was using this as a capital loss because the FMV of the home was more than what I physically received a check for.    I haven't received a 1099-B or 1099-S for this!  I also read I was not allowed to use home improvements, such as new carpeting and new paint as a deduction?  Lastly, an inherited property is long term not short term.  I've read so many different articles on that, not sure what it is.  Thanks again!

[ColeenD3]

Yes and no. You got the basis part right. It is the FMV on the date of death. Expenses of the sale, listed below, are added to the basis. Yes, it is long term. A new carpet is an improvement and is added to the basis. Painting is a repair and is not.

The sales price is not adjusted in any way. It is the amount on Closing Disclosure (Hud 1) that is the Contract Sales Price.

If you sold it immediately after death, then you may well have a loss. A personal loss is not deductible.

[sparkedup1]

So,  for example: the FMV of her house was $125,000, and that is the amount I sold it for.  That($125,000) is the amount I would use for SALE PROCEEDS???   Not the amount of the check I received after the mortgage payoff, commission, property taxes, settlement charges, transfer charges, and title charges?

I did sell it 6 months after she passed.

[JotikaT2]

No, your sales proceeds will be the amount listed on your closing statement as the gross sales price. 

The check you receive is not the gross sales proceeds.  It factors in all those expenses you listed above. 

Those expenses would be treated as selling expenses on your tax return and used to reduce any gain on the sale of the house, if any.

The cost basis you start with will be the fair market value of the home on her date of death.  Typically, you would have an appraisal done to determine this value.

[sparkedup1]

OK, my cost of other basis and sale proceeds will be the same figure on the return.  Since I  do not have a capital gain is there even a reason to put those selling expenses anywhere on the return?  If so, where do I include those figures?

[ErnieS0]

Not if this is a non-investment, non-business sale. The IRS says “losses from the sale of personal–use property, such as your home or car, are not deductible. It is not eligible for the capital gains loss of up to $3,000 annually.” So if you already have a capital loss, adding sales expenses to create a larger loss will not impact your taxes.

You can add them for completeness sakes, but they are not necessary.

Relate Resource:

• What if I sell my home for a loss?

[Hal_Al]

The sale of a vacant  inherited home is treated as the sale of investment property, UNLESS it was used for personal use in the interim between being inherited and sold. 

So, you, most likely,  have a deductible capital loss. 

[sparkedup1744]

Thank you all for answering but I'm confused as ever now.  I feel as if I'm getting mixed answers and my question isn't being directly answered so a lay person like me can understand.    I just need to know:  do I use the same figure in COST OF OTHER BASIS  and SALE PROCEEDS?   Since the FMV  and the amount the house sold for, are the same?  I have learned the sale proceeds are gross and not the check I received after all commissions, taxes etc. are taken out.

[Hal_Al · Accepted solution]

Q. Do I use the same figure in COST OF OTHER BASIS  and SALE PROCEEDS?

A. No.  The fact that the cost basis FMV and Sale price are the same is just coincidental and not relevant. 

 Your cost basis is the FMV on the date you inherited it  PLUS the cost of any improvements. The new carpet is an improvement.

Your sale proceeds is the GROSS sale price.

You then get to adjust for the expenses of sale.  There are three ways* to that (and that's probably where most of the confusion is coming from).  Using TurboTax (TT), TT will do it for you. So enter expenses of sale as a separate item from cost basis and sale proceeds.  You may include the painting cost (a "fix up" expense) in expenses of sale. 

*The other two ways are 1. add expenses to cost basis or 2. deduct from sale price.  Since you want your sale price to match the 1099-S, #2 is least recommended. 

[sparkedup1744]

Thank you, that does clarify it for me better.  Only problem is I have not received a 1099-S.  I read the Title Company I used was suppose to supply that?  I have emailed them to ask them about it.  Did I read correctly?

Also, living in Kentucky and inheriting the home in Illinois...I paid property taxes on that home.  Can I deduct those expenses also.  

[Hal_Al]

The 1099-S is usually (almost always) included in your closing documents. It is not sent to you in January, like other tax documents. If you don't have one, you don't need it to file. 

Yes, you may add the current year "carrying costs"  (real estate tax) of investment property to your cost basis.  If the house is not classified as investment property, the real estate tax is only deductible as an itemized deduction.