If i sell an inhereted house for $110,000.00 and it's market value is $137,000.00 do I file capital gains tax or deduct loss of value ?

[60redhair]

How do I get out of paying capital gains tax on inhereted house? Can I file something else if I sell house $25,000.00 under market value?

[SweetieJean]

What is the source for $137,000 Fair Market Value? It is not necessarily the same as the value used by the municipality for calculating property taxes.

[TomYoung · Accepted solution]

You've left out an important detail, or at least not made it clear. 

Your cost basis in the house is the house's supportable fair market value at the date of death.

Then when you sell the house your net proceeds after deductible selling costs vs. the cost basis determines if you have a gain or loss, period.  So if the house's fair market value at the date of death is what that "$137, 000" is referring to, then any sale of the house for a stated selling price more than something like $145,000, (I've made a SWAG estimate for what selling costs might be, deducted from that $145,000), results in a gain.  Sell it for less, you've got a loss.

If that $137,000 is referring to a current fair market value, not the cost basis, then you sell it for $137,000, deduct your cost basis, and that's either a gain or loss.

You're a fool if you somehow think you'd be better off selling the house for less that it's worth.  Capital gains in this case might be as low as 0% - 15% so you're always going to have more money in pocket if you sell the house for more, even if you pay more taxes.

Tom Young

[SweetieJean]

In order to claim a capital loss on inherited property, you must sell the house in an arms length transaction.

[macuser_22]

And if you are selling for $25K under fair market value that you could sell it for then that $25k would probably be a gift of equity which might require a form 709 gift tax return since it is over the $14K limit for a gift.