Hello Community, I accidentally posted an earlier version of this in the Retirement section. Not intending a double-post. Will try to delete from Retirement, after asking here.
I have read the following posts prior to asking our question:
https://ttlc.intuit.com/community/taxes/discussion/sale-of-inherited-home-owned-by-three-siblings-ta...
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/what-are-the-tax-impl...
https://ttlc.intuit.com/community/tax-credits-deductions/discussion/sibling-buyout-capital-gains-tax...
https://ttlc.intuit.com/community/tax-credits-deductions/discussion/figuring-out-adjusted-cost-basis...
https://ttlc.intuit.com/community/tax-credits-deductions/discussion/figuring-out-adjusted-cost-basis...
Three siblings (Peter (me), sisters Sherry and Lori) inherited a modest home from our last-remaining parent, who passed in 2020. We inherited an equal 1/3 each. A licensed real estate appraiser was hired quickly after the DOD and produced a stepped-up cost basis of $120K. After Covid, myriad other delays, & a few failed attempts for an outside sale, Sherry decided & requested to buyout the other two. Closed in January, 2024, (house value agreed upon $144K); i.e., Peter & Lori received $48K ($144K/3) each. A 1099-S was received from the real estate/closing attorney's office by each of the three siblings.
I believe our (Peter/Lori) LT Capital Gain is $8K/each [$144K/3 (Jan 2024 value) minus $120K/3 (2020's stepped-up basis) = $8K], for our 2024 1040's.
So, I guess I'm really asking a few questions, apologies:
A) Why did Sherry receive a 1099-S for 2024, at all, as she had realized no gain? The attorney's office has, well, not been super helpful and replied that an outside company takes care of that for them. No hard-feelings, just not adequate info. IMHO. Was it simply filed to alert the IRS of the buyout AND the three-way split of the parent's home? Does Sherry need to file anything for 2024's 1040 for the inherited house?
B) Sherry never lived in the inherited home but did invest in some minor renovations (say $5K, for ease of calculations). Sherry has decided to sell to an outside party in 2025. Newest appraisal was, say, $155K. Sale price not disclosed to Peter/Lori, as it's none of our business and we've no issues with that. Just trying to help my sister, along with YOUR help 😉!!
What will be her basis in the inherited property, as the new sale should close in late 1Q2025, how does one arrive at that figure, and, finally, what will her Capital Gain calculation look like for her 2025 1040?
Based on the last link above, I’m assuming the new basis will be:
$40K (1/3 of the original 2020 stepped-up basis of $120K for Sherry's original inheritance) + the $96K paid to us (Peter/Lori) + any deductible improvements made in 2024 (ex. $5K, if all are deductible) = $141K*, total. Correct? (edited - because Peter couldn't add correctly in the original post 🙄)
So, the 2025 LT capital gain for Sherry will be = to the [2025 Sale Price minus $141K* cost basis (assuming all improvements are deductible) minus any deductible selling costs]. Is that correct?
Thanks, in advance, for your reply and assistance! Sincerely appreciated (no pun intended)!!
Peter
