Proceeds from the sale of an inherited house

[GeorgeS6]

We are using the proceeds from the 2024 sale of the inherited house to pay for our mother's long-term care. How is this accounted for since it's possible most of the proceeds from the sale may be consumed for her care?

[Opus 17]

It doesn't matter what you spend the money on.

The owner of the home pays tax on any capital gains when the home is sold.  Depending on how the home was owned before and who inherited it, it probably received at least a partial step-up in basis; and depending on the time between the death of the prior owner and the sale, and how the home was used, there may be little tax actually owed.  But you would need to tell us more.

Then, how the money is spent is completely separate and has no effect on the tax owed for the sale.  Again, depending on who owned the home and received the proceeds, and whose care is being paid for, there might or might not be a schedule A itemized deduction for medical expenses (but that is true regardless of where the money came from).  Again, we would need more details to explain further. 

[GeorgeS6]

Opus,

Thank you for the quick reply. As for more background, The house in question which was owned outright by the siblings father and mother was willed to my wife and her sister upon their father's death. My wife and her sister then sold the house in early 2024 to help pay for his wife/their mother's long-term care at a private pay assisted living facility. When all is said and done most of the proceeds of the sale (ie., roughly 70%) will be exhausted by the end of calendar year 2024. 

The proceeds from the the sale of the house was deposited into a joint bank account (ie., separate from our personal bank accounts) that is shared by my wife and her sister. It is being used to pay their mother's long-term care expenses. In addition the selling realtor provided a Settlement Statement as well as a Property Summary Report from the local appraisal district where the house resides. I'm assuming we will have to complete the 1099-S using that information for tax preparation. 

[Opus 17]

When did the father die, and how did the father legally pass the house to the children if it was co-owned by the mother?  Did the children only inherit the father's share, so mother still owned 1/2 and children owned 1/4 each?

[GeorgeS6]

Their Dad died in 2021 and his wife lived in the house until the start of 2024 when the situation was no longer tenable to continue due to her declining health. The (2) children's names were  the only one's on the deed (50/50 split) at the time of his death and they sold the house in early 2024 to help pay for their Mom's long-term care. 

[Opus 17]

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@GeorgeS6 wrote:

Their Dad died in 2021 and his wife lived in the house until the start of 2024 when the situation was no longer tenable to continue due to her declining health. The (2) children's names were  the only one's on the deed (50/50 split) at the time of his death and they sold the house in early 2024 to help pay for their Mom's long-term care. 

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That's not enough.  It is very important to know exactly how the house got from being co-owned by the father and mother to being co-owned by the children.  All the steps in between. There was an inheritance, seemingly, but there may have also been a gift, or quitclaim deed, or other form of transfer.  We also need to know whether this home was owned by the parents in a community property state. 

[GeorgeS6]

Opus,

thank you for the information. It was helpful. 🙏

best regards,

George