Do I need to report income from sale of property inherited in Puerto Rico on my US Tax Returns? I do know how to proceed with Puerto Rico.

[jtax · Accepted solution]

An inheritance (a gift) is not subject to federal income tax. "Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance." https://www.law.cornell.edu/uscode/text/26/102 ... So the value of the property inherited is not federally taxed.

However, an income received after inheritance may be taxable (e.g., rental income from a house or dividends from a stock). Upon sale, the gain (if any) on property is taxed (capital gain tax) . The gain is the gross proceeds minus the cost of the sale (commissions, transfer tax, etc.) minus your "basis".

Your basis in inherited property is its fair-market value at the owner's death.  https://www.law.cornell.edu/uscode/text/26/1014

So if you sold it that day, you would have no gain, maybe a loss (because of sale expenses). Usually, you sell it sometime later. You will then have a gain on the change in value from the date of death. This is usually not very large, but it depends upon how the market moved between the date of death and sale.

Note, this only applies if you inherit upon the owner's death. If the owner gave you the property while still living, your basis would be their basis.

I don't know about how to handle Puerto Rico or if there is any special treatment of assets in Puerto Rico, so I cannot speak to that.

@jrlm59 I am very sorry for your loss.

[jrlm59]

Thanks for the information.

Perhaps you could guide me on how to calculate the value. The property passed to us after my mother's passing in 09/2021. There was no will, and legal papers were not completed until 2022.

In 2024 my sister had the property appraised ($140). It sold for $165(2 siblings) in 09/2025. The property was vacant all the time.  We paid utilities, taxes (PR) & maintenance all the time.

I'm concerned about the upcoming estimated tax payment, as I feel it should cover any possible capital gain related to that transaction, and I don't know how to start the calculation. 

Will appreciate any feedback.

[jtax]

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@jrlm59 wrote:

Thanks for the information.

Perhaps you could guide me on how to calculate the value. The property passed to us after my mother's passing in 09/2021. There was no will, and legal papers were not completed until 2022.

In 2024 my sister had the property appraised ($140). It sold for $165(2 siblings) in 09/2025.

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Yes, any gain will be taxed on your 2025 1040.

You need to figure out the value of the property on the date your mother passed away. The 2024 is a good start, but somehow you need to come up with the value on the date of your mother's passing and be able to support that value if audited, which is not likely.

Was there a probate? If so, was there an inventory that included a valuation for probate purposes? 

You might do is to get the value (the "assessment") for local property tax values at the time your mother passed and compare it with the assessment when it was appraised in 2024 and when it sold. Those are often public records from the town's property tax website and/or your mother's records. Then apply the same % change to figure out the true market value.  That might only make sense if the locality keeps its assessment up to date, which is not always the case. It is not the best support for your chosen value, but it is something.

Also, you might look at real estate sites that provide historical estimates of value, such as zillow.com ("Zestimate") ... if they do so for your property and the value just before the actual sale is close, perhaps it would be reasonable to use its value as of the date your mother passed.

If you are asking for how much gain, the total gain will be the sales price minus the cost of the sale (commissions, lawyers, etc.) - any capital improvements you made (if any) - the fair market value on the date your mother passed.

You say you and a sibling inherited it. So you would take 50% of all the numbers to report on your return. Turbotax might handle this by asking you how much of the property you owned and then doing the 50% calculation. Pay careful attention to that during the interview.

I cannot advise you on how much tax you might owe. That depends so much on the rest of your tax situation. There is even a zero% (no tax) capital gains bracket. For 2025 total taxable (after deductions) income (including the gain) can be about $48k (single)/$96k (married filing jointly) without any tax owed. Above that  level, capital gains taxes are usually 15%. That does not include your home state's income tax nor Puerto Rico's non-resident income tax. Again, I don't know if Puerto Rico has an income tax that applies. Most states tax their residents on all of their worldwide income and tax non-residents on their income realized from within that state (including the sale of real estate).

Normally, you could not deduct (add to your basis) the cost of maintaining the property (real estate taxes, etc.), but because it was vacant and never used personally after your mother passed, it was held for investment and not personal-use property, you may be able to make a "section 266" election to capitalize those costs. It appears that you cannot make that election for prior years once the return has been filed, so only 2025 may be available to you. You might want to seek professional guidance on that point from a CPA, enrolled agent, or tax attorney who regularly deals with real estate transactions (perhaps developers).

This is a prior discussion of the 266 election issue and Turbotax:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/how-do-i-make-an-election-in-sec...