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lheadl07
New Member

How can I enter capital gains in TT Premier for the sale of a second home that was partly gifted on one date with the rest inherited at a later date?

My wife and 3 other relatives were gifted shares of her mother's house several years ago, then they inherited the remainder in 2015 when her mom died. It was sold this year. When I tried to enter the details into Turbotax as the sale of a second home, I had to choose whether the property was a gift or a legacy. There is no option to show that it was part gift and part legacy. Since the basis is different for gifts and legacies, if I show it as two different properties sold at the same time, one would show a loss, and I'm not sure the loss would partially cancel the gain on the other part. What is the best way to handle this in Turbotax? I did see one Q/A indicating that choosing "other" rather than "second home" might be better for a house sale, but that doesn't help my situation. 

1 Best answer

Accepted Solutions
Hal_Al
Level 15

How can I enter capital gains in TT Premier for the sale of a second home that was partly gifted on one date with the rest inherited at a later date?

The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (seehttp://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est... which states in part "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")

More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1


Sale of Inherited Home

Sales of real estate are usually reportable on your tax return, especially if a form 1099-S is issued. There will most likely be no capital gain and therefore no tax. Any capital gain would be on the difference between what the house was worth on the date of the decedent's death (your "cost basis") and what the house sold for. The listing price is irrelevant. If you made any improvements, those costs would be added to your cost basis in determining the capital gain. Whether you have a deductible capital loss is dependent on how the house was used after your mother's death.

If you, or other relatives, lived in the house, you cannot take a deduction for a loss on the sale of a residence, even a second home.

If the house was "investment property", and sat vacant all this time, you can deduct the loss.

If it was rented out, you can still deduct the loss (it's rental investment property), but you must "recapture" the depreciation allowed or allowable. That is, you must report the depreciation taken (or that you should have taken), over the years, as income on your tax return in the year you sold it. It essentially reduces your capital loss, but the capital loss and recapture are reported in different places on the tax return.


Type> 1099-S, sale of property other than main home <in the find (search) box. Click Jump to. Say no when asked if you got a 1099-B. Then follow the rest of the interview.

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3 Replies
TaxGuyBill
Level 9

How can I enter capital gains in TT Premier for the sale of a second home that was partly gifted on one date with the rest inherited at a later date?

It should not matter.  Just pick one, use the date it was gifted, and enter the correct Basis.

However, are you positive it was a Gift, rather than a Life Estate?
lheadl07
New Member

How can I enter capital gains in TT Premier for the sale of a second home that was partly gifted on one date with the rest inherited at a later date?

Yes, there is no mention of a Life Estate in the deed that transferred part of the property. From my reading of the reference info on this, the Life Estate would have to be spelled out in the deed.
Hal_Al
Level 15

How can I enter capital gains in TT Premier for the sale of a second home that was partly gifted on one date with the rest inherited at a later date?

The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (seehttp://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est... which states in part "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")

More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1


Sale of Inherited Home

Sales of real estate are usually reportable on your tax return, especially if a form 1099-S is issued. There will most likely be no capital gain and therefore no tax. Any capital gain would be on the difference between what the house was worth on the date of the decedent's death (your "cost basis") and what the house sold for. The listing price is irrelevant. If you made any improvements, those costs would be added to your cost basis in determining the capital gain. Whether you have a deductible capital loss is dependent on how the house was used after your mother's death.

If you, or other relatives, lived in the house, you cannot take a deduction for a loss on the sale of a residence, even a second home.

If the house was "investment property", and sat vacant all this time, you can deduct the loss.

If it was rented out, you can still deduct the loss (it's rental investment property), but you must "recapture" the depreciation allowed or allowable. That is, you must report the depreciation taken (or that you should have taken), over the years, as income on your tax return in the year you sold it. It essentially reduces your capital loss, but the capital loss and recapture are reported in different places on the tax return.


Type> 1099-S, sale of property other than main home <in the find (search) box. Click Jump to. Say no when asked if you got a 1099-B. Then follow the rest of the interview.

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