Loss on the sale of an inherited home 4 months after inheritance

[Ken1122]

I'm getting mixed responses on whether an inherited home that sits vacant while in the 4 month sell preparation process can be claimed as a capital loss if sold for less than the FMV at time of death of decedent.  Some say it is personal use if not used for a business or rental thus capital loss cannot be claimed; while others say it is investment property and thus the loss can be claimed.

[Ken1122]

Note:  the home was the personal primary residence of the decedent.

[M-MTax]

If there was no personal use, the house can be treated as investment property and a loss recognized.

Ref https://www.irs.gov/pub/irs-sca/1998-012.pdf

[Opus 17]

Most of the experts on this forum seem to agree that if you never lived there, and were simply holding it for a short time so you could sell it, that you can treat it as investment property.  

However, I would be somewhat concerned with the idea that you sold the house for less than the FMV at the time of the decedent’s death. Four months is a pretty short time for the real estate market to turn down and cause the house to lose value, and I would expect that a sale only four months after the date of death would accurately reflect the FMV. Remember that while FMV can be estimated with an appraisal, the only true measure of FMV is what a willing buyer will pay a willing seller in an open sale.  I’m not saying you can’t use a higher FMV, but I am suggesting that you should document it very thoroughly in case you are audited.

Of course, even if you determine that the house sold for its FMV, you will still likely show a small loss once you include the real estate commission and other selling expenses.

[M-MTax]

Estate sales are usually somewhat distressed sales and rarely fetch top dollar or even the full appraised value. When real estate commissions are factored in and the sale follows shortly after the decedent passed, the transaction is very likely to generate a loss.

Everyone involved is anxious to get a signed sales contract and a quick closing.