Inherited house

[Mary16anne]

I’ve read through the forums trying to find my answer. I did receive a 1099s from title company with gross proceeds. In other answers you say put that amount for sale proceeds but shouldn’t I just be taxed on basis difference? The amount on 1099 s shouldn’t be used since it doesn’t take this into effect? Or if it does have to be used, how is basis amount adjusted? I also split proceeds with 2 siblings. We didn’t actually inherit the house until probate was completed 7 months after death. Also if there was a lien against the property, shouldn’t that loan amount come out of final proceeds? Thanks!

[MarilynG1]

Yes, you will be taxed on the difference between the Cost Basis and Sales Proceeds as Capital Gains (or Loss).  The sale of an inherited home is entered in the Investments section. 

1. In the search box, search for sold second home and select the Jump to link at the top of the search results
2. Answer Yes on the Did you sell any investments in 2022? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
3. On the Did you get a 1099-B or a brokerage statement for these sales? screen, select No
4. On the Tell us about this sale screen, select I’ll enter one sale at a time, and enter Second home

Adjust the Cost Basis amount by any amounts that were required to be paid before receiving Sales Proceeds; however, this does not include Mortgage Payoff.  These can include title fees, real estate commissions, documentary stamps, credit report costs, costs of an abstract, transfer taxes, home inspection, flood certificate, and attorney fees.  

If you received the funds and split the proceeds with your siblings, you essentially 'gifted' them the funds, so you should file a Gift Tax Return.  You are not taxed, and it is not reported on your personal tax return.  Your siblings don't need to report the gift. 

Here's more info on Sale of Inherited Home.

@ Mary16anne 

[rjs]

You are right that you are only taxed on the difference between the sale proceeds and your basis. But Form 1099-S is not supposed to report the taxable amount. It reports the full proceeds. You have to enter the basis information in your tax return. (The title company or closing agent doesn't know your basis.) Then your taxable gain is calculated on your tax return. So on your tax return you have to enter the full proceeds shown on the 1099-S. TurboTax will give you separate places to enter the proceeds from the 1099-S and your basis, and it will calculate the taxable gain.

Your basis is the fair market value of the house on the date of death of the person that you inherited it from. It doesn't matter when the title was actually transferred or when probate was completed.

Who actually held title to the house at the time of the sale? MarilynG1 assumed that you alone inherited the house, sold it, and then gave part of the proceeds to your siblings. Is that what happened, or did the three of you all inherit the house as joint owners, and then you all sold it? Are you the only one who got a 1099-S, for the entire sale price, or did you and your siblings each receive a 1099-S for your respective shares of the proceeds?

If you alone inherited and then sold the house, the money that you gave to your siblings was gifts, as MarilynG1 said, and you have to file a gift tax return. The proceeds of the sale belonged to you, so you have to report the full amount on your tax return. But if all three of you were on the title prior to the sale, then there was no gift. You should have each received a 1099-S for your respective shares of the proceeds. You would each report your respective shares of the proceeds and the basis on your individual tax returns.

You cannot file a gift tax return with TurboTax.

As MarilynG1 said, paying off the mortgage is not taken into consideration in calculating your proceeds, basis, and gain. I don't know how you're supposed to handle an inheritance of a property that is subject to a mortgage. I'm hoping that someone who knows more about it will come along and explain that.

Since there are some complications in your situation, you might benefit from consulting a local tax professional to go over all the details.

[Mary16anne]

Thank you. Yes, my siblings and I all sold the house together and split proceeds. And yes we each received a 1099-s. So no gift transactions. Would love for someone to chime in on the HELOC on home at time of sale.  Not sure why that amount would need to be taxed as it never came into our possession. Title company paid at settlement.

[rjs]

The money did come into your possession. You got the full sale price from the buyer. You used part of your income from selling the house to pay off the loan. The title company may have handled it, but they used your money to pay off the loan. The title company didn't owe the debt, nor did the buyer. You owed it.