Aunt placed her house to 4 of us in a life estate 1995. She lived in it paid all expenses until death 2017. House sold 2017. Is cost basis FMV at time of sale in 2017?

[richg635]

To be clearer, my aunt added my self an 3 siblings to her primary home's deed in 1995.  The approximate value then was $140,000.  She lived in the house by herself, and paid all bills and expenses for the house, to the day she passed away in February 2017.  On that day the home became my siblings and mine.  The house was not in her will, since it would automatically become ours.  Approximately 6 - 7 weeks after her passing, we listed the house for sale with a realtor at the appraised value of $339000.  It sold the first day for $335,000. 

Also, the house is in Long Island, NY, and all 4 of us live in New Jersey. 

At the time of the closing a NY CPA told us that the cost basis of the house for tax purposes was the day of my aunt's death, since we never received any benefit or gain from the house until its transfer to us.  I am trying to determine if this info is correct, since it is true.  My aunt had full control of her house.  We never received rent, or anything else until my aunt's death. 

The four of us will each receive a 1099-S for 25% of the sale, approximately $83,455.  Thank you

[richg635]

Thank you.  However, what do I do with the 1099-S that has been sent to the IRS? Also, following your instructions, once I proceed with the interview, it asks for a "property description."  Is that the address of the property, or something like "inherited single family home."  Please advise.  Thank you very much

[AnnetteB]

Just keep the 1099-S with your records.  It does not specifically need to be entered into your return.  For the property description, you can enter the address or "inherited home" -- there is no set rule, it just needs to describe what you are reporting.

[richg635]

Thank you very much for your answers and help.

[AnnetteB · Accepted solution]

The CPA is correct, the cost basis is the fair market value of the home on the date of death of your aunt. 

When you report the sale of your portion of the property on your return, you will use one fourth of the total cost basis since you will only be reporting one fourth of the total proceeds from the sale.

This type of sale is entered as a sale of an asset that will be reported on Schedule D for capital gains.  Using TurboTax, take the following steps to get to that section of your program:

• Using the search box in the upper right corner, type “inherited home – home sale”.  Then click Find.
• The search results will show a link to Jump to inherited home – home sale.  Click that link.
• This will bring you to the correct section in the program.  Answer the question about selling an investment with Yes.
• Answer the question about receiving a 1099-B with No.
• Choose Everything Else as the type of investment sold (not Second Home).
• Proceed with the interview and answer the questions reporting only your share of the net proceeds of the sale.  Be sure to also adjust the fair market value of the property to only consider your portion of the value since you only owned a portion of the property.