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I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

 
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I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

In general, whenever you sell property you owe capital gains tax on your gain.  You don't qualify to exclude the gain since you didn't live there as your main residence.

The gain is the difference between the selling price and the adjusted cost basis.  You can also reduce the selling price by certain selling expenses, like legal fees, real estate commission, inspections that the seller paid for, and transfer taxes.  (You can't reduce the selling price by repairs, cleaning, or staging.)

Figuring your cost basis is where it's gets difficult, and why you need to know the exact form of the deed.

If she added you to the deed but retained a life estate, then in the IRS view, you inherited the entire house.  This is because the life estate gives her certain rights that she would not have if you were an equal owner.  When you inherit property, you inherit a "stepped up" cost basis equal to the fair market value on the day she died.  Assuming you sold the property rather soon and there were no major changes in the real estate market, then the selling price is also the FMV, which is also your basis.  So you have no capital gains and owe no tax.

However, if your grandmother added you to the deed "in fee simple" this means she made you an equal owner in 2009.  Basically, she gave you half the house.  When you give property you also gift your cost basis, so she gave you half her cost basis.  Then when you inherited the other half of the house in 2017, you inherited a stepped up basis on that half.  So your cost basis when you sold the house is (1/2 the FMV in 2017) + (1/2 your grandmother's basis as of 2009).

What was your grandmother's basis as of 2009?  That's where things get harder.  

Suppose she bought the house with a spouse in 1970 for $20,000 and the spouse died in 2005.  Your grandmother inherited half the house from her spouse in 2005, so her cost basis would be (1/2 the purchase price) + (1/2 the FMV when her spouse died).  

The basis is also adjusted for permanent improvements like a new roof, furnace, and remodeling, if you can prove how much those things cost.  So let's consider a complicated example. 

Home was purchased with a spouse in 1970 for $20,000.

Grandmother and spouse remodeled in 1980 for $25,000.

Grandfather died in 2005, at that time the house was worth $100,000.

You were added to the deed in 2009.

In 2010, you replaced the furnace and roof for $15,000.

When your grandmother died in 2017, the home was worth $175,000 and that was the selling price.

Your grandmother's cost basis on her half the house as of 2005 is $22,500 (Half the purchase price + half the remodeling cost). When her spouse died, she inherited his half valued at $50,000, so her cost basis was then $72,500.  She gives you half the house in 2009, so your share of the cost basis is $36,250.  You add to your cost basis, half the price of the improvements you made ($7,500) for a total of $43,750.  When your grandmother died, you inherited her half valued at $87500. Your total cost basis is now $131,250.  The selling price was $175,000 and you had allowable expenses of $14,000.  Your capital gains income subject to capital gains tax is $29,750.

Got all that?

(On the other hand, if she bought this particular property after your grandfather died, and then gave you half, then she just gave you half her cost basis.  Same general principle but easier to calculate.)

In turbotax, don't report it as the sale of your house, since you didn't live there.  Report it as the sale of "other investment property."  Turbotax may ask for the original "purchase price" but what you really enter is your adjusted cost basis, which you have to figure out on your own.  Method of acquisition is inherited, selling price and selling expenses are fairly obvious, and Turbotax will calculate your gain and your tax owed.

If you need to know the purchase price your grandmother paid, that will be in the county records.  If you need to know the FMV when your grandfather died, you can ask an appraiser for a value based on historical records.  If you don't know the cost of improvements, guess or leave them out of the calculation, but remember that if audited, the IRS does not have to give you any adjustments to basis that you can't prove to their satisfaction.  Anything you can't prove will lower your cost basis and increase your gains and tax owed.

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12 Replies

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

Exactly how and when did you get on the deed?

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

She refinanced and added me in 2009

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

You also need to know if the deed says that you were given an ownership interest in fee simple, or did she retain a life estate.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

Not sure.....

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

You need to find out.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

In general, whenever you sell property you owe capital gains tax on your gain.  You don't qualify to exclude the gain since you didn't live there as your main residence.

The gain is the difference between the selling price and the adjusted cost basis.  You can also reduce the selling price by certain selling expenses, like legal fees, real estate commission, inspections that the seller paid for, and transfer taxes.  (You can't reduce the selling price by repairs, cleaning, or staging.)

Figuring your cost basis is where it's gets difficult, and why you need to know the exact form of the deed.

If she added you to the deed but retained a life estate, then in the IRS view, you inherited the entire house.  This is because the life estate gives her certain rights that she would not have if you were an equal owner.  When you inherit property, you inherit a "stepped up" cost basis equal to the fair market value on the day she died.  Assuming you sold the property rather soon and there were no major changes in the real estate market, then the selling price is also the FMV, which is also your basis.  So you have no capital gains and owe no tax.

However, if your grandmother added you to the deed "in fee simple" this means she made you an equal owner in 2009.  Basically, she gave you half the house.  When you give property you also gift your cost basis, so she gave you half her cost basis.  Then when you inherited the other half of the house in 2017, you inherited a stepped up basis on that half.  So your cost basis when you sold the house is (1/2 the FMV in 2017) + (1/2 your grandmother's basis as of 2009).

What was your grandmother's basis as of 2009?  That's where things get harder.  

Suppose she bought the house with a spouse in 1970 for $20,000 and the spouse died in 2005.  Your grandmother inherited half the house from her spouse in 2005, so her cost basis would be (1/2 the purchase price) + (1/2 the FMV when her spouse died).  

The basis is also adjusted for permanent improvements like a new roof, furnace, and remodeling, if you can prove how much those things cost.  So let's consider a complicated example. 

Home was purchased with a spouse in 1970 for $20,000.

Grandmother and spouse remodeled in 1980 for $25,000.

Grandfather died in 2005, at that time the house was worth $100,000.

You were added to the deed in 2009.

In 2010, you replaced the furnace and roof for $15,000.

When your grandmother died in 2017, the home was worth $175,000 and that was the selling price.

Your grandmother's cost basis on her half the house as of 2005 is $22,500 (Half the purchase price + half the remodeling cost). When her spouse died, she inherited his half valued at $50,000, so her cost basis was then $72,500.  She gives you half the house in 2009, so your share of the cost basis is $36,250.  You add to your cost basis, half the price of the improvements you made ($7,500) for a total of $43,750.  When your grandmother died, you inherited her half valued at $87500. Your total cost basis is now $131,250.  The selling price was $175,000 and you had allowable expenses of $14,000.  Your capital gains income subject to capital gains tax is $29,750.

Got all that?

(On the other hand, if she bought this particular property after your grandfather died, and then gave you half, then she just gave you half her cost basis.  Same general principle but easier to calculate.)

In turbotax, don't report it as the sale of your house, since you didn't live there.  Report it as the sale of "other investment property."  Turbotax may ask for the original "purchase price" but what you really enter is your adjusted cost basis, which you have to figure out on your own.  Method of acquisition is inherited, selling price and selling expenses are fairly obvious, and Turbotax will calculate your gain and your tax owed.

If you need to know the purchase price your grandmother paid, that will be in the county records.  If you need to know the FMV when your grandfather died, you can ask an appraiser for a value based on historical records.  If you don't know the cost of improvements, guess or leave them out of the calculation, but remember that if audited, the IRS does not have to give you any adjustments to basis that you can't prove to their satisfaction.  Anything you can't prove will lower your cost basis and increase your gains and tax owed.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

The property value decreased quite a bit.  Does that affect anything.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

Also, I am on the deed as a "joint tenant, and not as a tenant in common, with right of survivorship". I still made money when I sold it, just hardly any after paying off the mortgage.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

"decreased in value" compared to what?  Compared to your basis (figured as I described?)  Compared to the original purchase price, or compared to some intermediate value?

It's perfectly possible to have a large taxable gain and get no money out.  Suppose a house is bought for $100,000, refinanced for $200,000, and sold for $150,000.  The seller gets little or no money, but they still have a capital gain of $50,000 (selling price minus purchase price) and owe tax on that. They can owe tax, even though they got no cash out, because they effectively got the cash out at time of refinance.  If they hadn't refinanced earlier, they would now get $50,000 cash out.  Since they took the cash earlier, they don't get it now, and they still have a taxable gain.

Just because the house lost value from the refinance in 2009 doesn't mean it lost value from it's basis.  You have to figure the basis as I described.

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

Mom passed away in September 0f 2019 and my sister and I inherited the house as a result of a life estate. We sold the house in April of 2020.  How do I report this  I got 1099S for the sale of the house.  

Alisme123Alisme
Returning Member

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

3 03 2023

 

TurboTax

 

2022 Tax year:

 

My Sister, Eileen, passed on Feb 1, 2021.   I am the trustee for her estate. 

 

I filed her income federal and state (AZ) taxes in 2020 and in 2021.

 

In 2021 and 2022, after three visits to the property, I upgraded the property and sold it.   The property sale price $430,00 and expenses for travel, food lodging, fixups, settlement cost, insurance, security, etc., about $32,500.

 

How do I incorporate this into my federal and State (VA) taxes.  Do I have to do another filing for my sister in Arizona, 2022 federal and state? (AZ)

 

What is my taxable amount?  My mom passed in 2002 and they owned the property.  This property was changed into her name in 2002.  My sister paid the Real Estate taxes on this property and owned it in her name. 

 

In 2019, she put this property in a trust and I was appointed the trustee in the event of her death. 

 

How do I incorporate these proceeds into my taxes?

 

AlfredD

 

 

DianeW777
Expert Alumni

I was on the deed with my grandma for her house, not my primary residence. She passed away in 2017. How do I report the sale of this house?

You will report a sale of inherited property on your 2022 tax return.

  1. How do I incorporate this into my federal and State (VA) taxes?  
    • You would report a sale of inherited property (see below).
  2. Do I have to do another filing for my sister in Arizona, 2022 federal and state? (AZ) 
    • No.  Your sister filed her final return in the year of death, 2021. You would file the return for AZ only if the property is situated in AZ. Even if you have a small gain you would be required to file based on the selling price to show the actual gain or loss.
  3. Review the entry steps for your federal return below.

This is considered investment property, report the sale using the steps below:

  1. Under Wages & Income scroll to Investments & Savings
  2. Select Start/Revisit beside Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
  3. Select Add Investments or continue to go through the screens to select 'Other' > Continue
  4. Begin to enter the sale description >  Under Type select Other > Under How did you receive select 'I Inherited it'
  5. Continue to complete the screens until you arrive back at the Wages & Income main page.

Inherited property is considered to have a long term holding period which provides favored tax treatment.  Your cost will be the fair market value (FMV) on the date of death.  You will add to that the cost of preparing it for sale (upgrades).  Other costs would be selling expenses. Other selling expenses will be on the Settlement Statement for the sale. Do not include property taxes or mortgage interest in these expenses.

 

@Alisme123Alisme 

 

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