Let's assume you and a sibling inherit a parent's home and sell it. Here is how it is handled.
You do not need to report 100% of the sale on your return. For example, if there were two of you, and you each inherited 50% of the property, then you would only record 50% of the proceeds, selling cost and basis on your return to determine any gain or loss. You can find directions in the FAQ below AND by click on "How to enter my 1099-S" blue link at the bottom of the FAQ below.
Your sibling would include the other half. So, between both of your returns, you would have all of the proceeds, selling costs and basis recorded.
The inheritance itself is not taxable. However, since you sold the property, what matters here is the fair market value (FMV) of the property on the day it was deeded to you. If you sold it for more than the FMV, meaning you made a gain, then the gain is taxable. If you sold it at a loss, then you don't even need to report the sale, as you can't deduct that loss anyway, since it's inherited property.
BASIS DETERMINATION
A home's tax basis is determined in a different way when someone inherits a home after the owner dies. When you inherit property after the owner dies you automatically receive a "stepped-up basis." This means that the home's cost for tax purposes is not what the now-deceased prior owner paid for it. Instead, its basis is its fair market value at the date of the prior owner's death. This will usually be more than the prior owner's basis.
The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death.
You can enter the sale of that inherited property by entering it using the directions below (as a sale of investment) JUST REMEMBER TO ENTER ONLY YOUR SHARE OF THE AMOUNTS:
Entering Sale of Inherited Home
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
