my mother died, we sold her house, and received 48,667.46 (cash to seller). me and my sister both received a check for $24,333.73. do i pay tax on it? I read the thing on the FMV, fair market value.. but i don't understand it??? you would think the fair market value should have been at least 75,000, that is what we were asking for it originally, but gave up getting it, and finally ended up for selling it for way less $54,000. Do I have to pay taxes on that $24,333.73?"
We also inherited a house 5 years ago that was sold in 2014. My mother is still living but it was deeded to us 5 years ago. Would the basis be the fmv at the time the property was deeded to us or will it be $0 because we did not pay for the property?
Something's not right with your statement above. How can you inherit the house from your mother 5 years ago, if she was living in it at the time? Generally, you inherit property from someone who was deceased at the time of inheritance. Was this a UTMA thing? Or something else?
The house was transferred and deeded to the children prior to her death. She currently still living and they we did not pay for it when the deed was transferred.
Then it's not an inheritance. It's a gift, and if the gift exceeded $14K in the year it was given, it's subject to the gift tax. I have no doubt the property was worth well more than $14K when it was given to you. Paying the gift tax is the responsibility of the giver, and not the receiver. The receiver reports nothing. I would HIGHLY SUGGEST you NOT USE TURBOTAX this year, and instead, pay a CPA to sort this out for you, since your mother has passed. Her estate is responsible for the gift tax. If you just ignore this, it will bite you.
When you report the sale of the property, your cost basis will be the FMV of the property at the time it was deeded to you. If you sold at a gain, you will pay taxes on the gain only. However, your initial acquisition of the property will raise flags at the IRS sooner or later. When it does (note I said "when" not "if") then the IRS can do what is called "clawback" where they can take back in to your mother's estate, from those that acquired it, whatever amount is necessary to pay the gift taxes, along with all the fines and penalties. So I urge you - consult with a CPA this year that you can hold legally liable and financially culpable for the advice and assistance they give you. You DO NOT have that protection in this public user-to-user form.
Also, others are going to see this thread and throw in their two cents. Follow their advice (including mine) AT YOUR OWN RISK AND PERIL!
a couple of points...
The cost basis would only be FMV at transfer if i that value is less then the cost basis of the owner.Otherwise it would be her cost basis. If it was owned by both your parents she might have received a step up in the basis when she became sole owner.
There should have been a gift tax informational form done in the year of the gift but if the estate of the owner at time of death was under estate tax limits(over 5million indexed for inflation) there will not be an estate tax.
If the home was transferred but left your mother with a life estate where she lived in home until her death then your cost basis might be the value at the time of her death.
This is why the poster needs to consult with a CPA. There's just way to many variables here to be covered in a text based communications forum. It will be well worth the expense for "face time" with a CPA to whom you can present all facts and documentation, so they can be provided the correct information the first time, and that information will be all inclusive of the facts provided and proven by the poster.
what if my parent passed and we sold the house after we cleaned everything out. Is the price for the sale of the house basically the value at the time of death if we really did not do any improvements other than clean and get rid of personal items? then sold it a month later. So we are treating the sale price as the value. If there is not capital gains, do we have to claim anything on our taxes if the net is $0?
to coxdt Your FMV should be determined by comparable sales. It is possible that the cost basis is higher then your sales price because you wanted a quick sale . Plus the selling costs are deductible expenses since this is investment property . You should have received a 1099-S from the closing company and that needs to be reported. Please note that inherited property is considered to be long term for any gain/loss.
My mother passed away and did not have a will. In her state the next of kin can claim her property and get the deed in our names (my brother and I), but we choose not to "assume the debt" with the mortgage company and just paid mortgage while we still resided in Florida. We did a quick sale to her best friend and received no money, but her attorneys sent both my brother and I a 1099-S form for 7500.00. Am I suppose to claim this on my taxes??
You have to report it on your taxes as a property sale. But you show the sales proceeds as the amount on the 1099-S and the cost basis as that same amount, so no taxable gain.
@collinsc211 Cost basis may or may not be the same. Proceeds are not the total sale price-remember the mortgage payoff.
You need more information. You should get the HUD statement for the sale and you should have an idea of the fair market value at the time of your mother's death. That plus your closing costs are your basis.
If it was sold while still in your mother's name you should have received a K-1 not a 1099-S
Well, they sure should report proceeds at least as great as the 1099-S! And, if I understand what happened here, I think reporting it as a break even transaction for the 1099-S amount is the most practical answer. And I would go with the forms they got.
Is it a gift tax or capitol gains if you inherit a family home when parent dies?
Inherited assets (cash or property) are not taxable to the beneficiary recipient. However, if the asset is sold by the beneficiary recipient, then you must establish the FMV of that property on the date the original owner passed, *NOT* the date you inherited it.
Then, if you sell the property for more than that FMV on the date the original owner passed, you will pay taxes on the difference.
If you received a 1099-S for the sale, then it doesn't matter if you sold at a gain or a loss. You *must* report the sale on your tax return. You don't have a choice.
An inherited property that you do not live in is considered an investment and the sale follows the rules of any sale. You get a stepped up basis in the property to the Fair Market value at time of death and your holding period is automatically long term. Any gain is taxed at a long term capital gain and any loss is LT capital loss. You can take $3,000 each year against ordinary income and can carry forward the loss until used up. see http://www.nolo.com/legal-encyclopedia/if-you-inherit-home-do-you-qualify-the-home-sale-tax-exclusio...
How the Stepped-Up Basis Rules Affect People Who Inherit Property"Basis" means an asset's cost for tax purposes. To determine whether you have a profit or less when you sell an asset, you subtract its basis from the sale price. If you have a positive number, you have a gain. If you have a negative number, you have a loss.
The basis of a home you buy or build is its cost, plus any improvements you make while you own it. SeeDetermining Your Home's Tax Basis for details.
However, 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.
Example: Jean inherits a house from her father George. He paid $100,000 for it over 20 years ago. George made $20,000 in improvements over the years, so his 's tax basis in his home just before George died was $120,000. However, when Jean inherits the home its basis is stepped-up to its fair market value on the date of George's death. Jean has the home appraised and this value is set at $500,000. Jeans sells the house for $505,000 a few months after she inherits it. Her tax basis in the house is $500,000. She subtracts this amount from the sales price to determine her taxable gain: $505,000 sales price - $500,000 basis = $5,000 gain.
If you sell an inherited home for less than its stepped-up basis, you have a capital loss that can be deducted (assuming you don't use the home as your personal residence). However, only $3,000 of such losses can be deducted against your ordinary income per year. Any excess must be carried over to future years to be deducted.
See also http://www.irs.gov/publications/p544/ch04.html#en_US_2013_publink100072633
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.
If you have an appraisal that was done within 2 years of it being deeded to you, then you can use the amount on the appraisal as the FMV. If such an appraisal isn't available, then you can probably find it on the website of your county's property tax appraiser. Note that the latter will usually be significantly lower than an appraisal done by a private, licensed, certified property appraiser.
Usually, (but not always) an appraisal will be done when the property is sold or refinanced. So that last mortgage holder for that property should have an appraisal on file - even if the mortgage has been paid off.
On this same subject of selling inherited house, does the capital gains tax exemption of $250k or $500k come into play?
@SBA wrote:On this same subject of selling inherited house, does the capital gains tax exemption of $250k or $500k come into play?
The Section 121 exclusion is generally inapplicable and also not typically needed since property acquired from a decedent receives a stepped up basis to the fair market value on the date of the decedent's death per Section 1014. As a result, there is usually very little, if any, gain provided the house is sold within a reasonable amount of time after death.
My siblings and I sold the home of our deceased father. Will it be necessary for us to claim the money from that sale as an inheritance or as capital gains income? The proceeds were split between the four of us.
@didi wrote:
My siblings and I sold the home of our deceased father. Will it be necessary for us to claim the money from that sale as an inheritance or as capital gains income? The proceeds were split between the four of us.
With very limited exceptions, an inheritance is not taxable to the heirs for federal income tax purposes.
You father's home would receive a step up in basis to the fair market value on the date of his death. Therefore, unless there was post-death appreciation, there should be no gain to report.
Is the money received from the sale of inherited property taxable if it was sold for less than FMV?