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dharshfield
New Member

My 2 bros and I inherited land from my g-ma when she passed. We are sellin the land and will pay capital gains. Can I avoid cg if I apply money made to pay off my home?

Grandmother passed away and gifted us a farm. How to avoid paying capital gains tax?

1 Reply
DS30
New Member

My 2 bros and I inherited land from my g-ma when she passed. We are sellin the land and will pay capital gains. Can I avoid cg if I apply money made to pay off my home?

No - You will not be able to avoid paying capital gains taxes because you are using the proceeds to pay off a debt on the property.

However, you should be aware that when you inherited a property, you get a step-up in the basis of the property to the fair market value (FMV) on the date of inheritance. So if you sold the property within a relatively short time of inheriting it and you made no capital improvements to the property, then you capital gain will be minimal.

Additionally your capital gain will be considered long-term (which is taxed at lower rate) because the sale of inherited property is always considered long-term.

To know the actual amount of the capital gain or loss on this sale, you will need to know not only your sale's proceeds  but also your basis in this inherited property. Your basis in an inherited property is usually the Fair Market Value (FMV) at the time of inheritance plus any capital improvements made to the property since inheriting it (all in USD)

Click IRS answers on Gifts and Inheritance for more information from the IRS on the sale of an inherited house.

  • To enter this transaction in TurboTax, log into your tax return  (for TurboTax Online sign-in, click Here  and click on "Take me to my return")and type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". TurboTax will guide you in entering this information (see step 6 below) 

Alternatively, To enter this transaction in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on” (jump to full list or show more income)
  4. Scroll down the screen until to come to the section “Investment Income”
  5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
  6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
  7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
  8. Choose type of investment you sold - select everything else
  9. Some basic information:
    1. Description –  Usually the address of the property sold
    2. Sales Proceeds – Net proceeds from the sale 
    3. Date Sold – Date you sold the property
  10. Tell us how you acquired the property - inheritance
  11. Enter the date inherited
  12. Enter the your fair market value - Fair Market Value of the property at the time of inheritance plus any capital improvements since inheriting it 
  13. If you had a loss, on the question of "Did you use this property for business or investment?" If the inherited house was not used for any personal use (no family member lived in it or used it between the time of inheritance and the sale), you will answer that this was for investment

One additional note: you may also have a state filing requirement in the state where the property was located even if it was not your home state. If the property sale is not in your home state, you would only need to file a nonresident state tax return in the state where the property was located to report any capital gain on the sale.


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