@nan306 wrote:
does that mean I put $28,500.00 as gross proceeds on schedule D instead of the $91,500.00 listed as gross proceeds on my 1099-S
No, you must list the gross proceeds exactly as on the 1099-S or the IRS will send a nasty letter. The fact is, the proceeds from your sale really are $183,000, or $91,500 each. It just so happens that in your case, part of the proceeds were paid in advance to the person who took out the mortgage.
This should not cause a problem with inherited property, because you received a stepped-up basis based on the fair market value when the person died. Your capital gains are the difference between your basis and the sales proceeds. For example, if you inherited the home in the same year and the fair market value at the time was also $183,000, then you have no taxable gain. Suppose you inherited the property a year ago and it's fair market value was $175,000. Then your gain is only $8,000 (split two ways) so only that part of the gain is taxable.
You can further reduce your capital gains by including in your basis, certain closing costs as listed in publication 523, as well as the sales commission. (Add them to the basis instead of deducting them from the sales price. What you enter as the sales price must match the 1099.)
So suppose you inherited the home last year and spent a few months cleaning it up and selling it. Your inherited basis is $175,000, you sold for $183,000, you paid 6% commission ($11,000), and you had $1000 of other includable closing costs. You would list the basis as $187,000, your sales price as $183,000, and you end up with a $4000 loss that you can deduct (split 2 ways), instead of a taxable gain.
