You will report this sale of inherited property as the sale of a capital asset. The fact that the property had a mortgage will not affect how you report the sale.
If no one used the
home for personal use before the sale, enter this as an investment. (The IRS
does not allow a capital loss on the sale of personal use property. This
rule applies to the sale of a vacation/second/inherited home that was a
personal use property).
Click this link
for further information about reporting
the sale of a capital asset
To enter this
transaction in TurboTax, log into your tax return (for TurboTax Online sign-in,
click Here and click on "Take
me to my return") and type "investment income (gains and
losses)" in the search bar then select "jump to investment income
(gains and losses)". TurboTax will guide you in entering this information
(see step 6 below)
Alternatively, to
enter this transaction in TurboTax Online or Desktop, please follow these
steps:
- Once you are in your tax
return, click on the “Federal Taxes” tab ("Personal" tab in
TurboTax Home & Business)
- Next click on “Wages &
Income” ("Personal Income" in TurboTax Home & Business)
- Next click on “I’ll choose
what I work on” (jump to full list)
- Scroll down the screen until
to come to the section “Investment Income”
- Choose “Stocks, Mutual Funds,
Bonds, Other” and select “start’ (or “update” is you have already worked
on this section)
- The first screen will ask if
you sold any investments during the current tax year (This includes any
sale of real property held as an investment property so answer “yes” to
this question)
- Since you did not receive a
1099-B, answer “no” to the 1099-B question
- Choose type of investment you
sold - select everything else
- Some basic information:
- Description –
Usually the address of the property sold
- Sales Proceeds – Net
proceeds from the sale (on 1099-S amount received for the property)
Do not include closing costs here. Instead increase the basis by any
allowable closing costs. Please refer to IRS - figuring basis on
property
for information about allowable closing costs.
- Date Sold – Date you sold
the property (on 1099-S)
- Tell us how you acquired the
property - inheritance
- Enter the date inherited
- Enter the your fair market
value - Fair Market Value of the property at the time of inheritance plus
any capital improvements since inheriting it. (Also, you can increase
the basis (FMV) by the allowable closing costs)
- If you had a loss, on the
question of "Did you use this property for business or
investment?" If the inherited house was not used for any personal use
(no family member lived in it or used it between the time of inheritance
and the sale), you will answer that this was for investment.
Click IRS
answers on Gifts and Inheritance for more information from the IRS on the
sale of an inherited house.
