Question on 1099-S inherited sale

[comrade_general]

My FIL passed away in 2015 and left an apartment building he inherited from his mother to my MIL.  The apartment has been severely neglected over the years and was too much for my MIL to keep up.  No money was made off of rent in the time my MIL took over.  We were never involved with the apartment or received any income.  My MIL wanted to set the apartment up so that my wife would inherit the property once my MIL passed away.  Since 2015 the property has been tied up in my FIL's estate which could be a complication.  My MIL doesn't handle dealing with settling estates and grief very well.  My MIL decided to sell last summer to be rid of the headache and split the sale with my wife.  She finally settled the estate and sold the property promptly afterwards.  We got a 1099-S and was told by the closing attorney we would get one but no mention of how this would be filed.   How would this be reported?   

[MarilynG1]

The Form 1099S is entered into TurboTax by using the steps shown here.

Form 1099 S is entered in the Less Common Income section of Turbo Tax (online or desktop).
 

1. Select Federal Taxes
2. Select Wages and Income
3. Scroll down and select 'Show More' at Less Common Income
4. Select Start at Sale of Home
5. The program will prompt you on how to handle if this home or property was not your primary residence.

Remember that the 'Cost Basis' of the home sold will be the Full Market Value on the date it passed to your mother in law, and remember to include Sales Expenses.

Here's more detailed info on Reporting the Sale of a Second Home, Inherited Home or Land. 

[Mike9241]

who owned the property on the date it was sold?  that who should have gotten the 1099-S and needs to report the sale. if it was your MIL, then she made a gift to you of the proceeds which makes it nontaxable/nonreportable by you but it should have been her that got the 1099-S. on the other hand, if your wife was the owner then you report the sale using the basis based on FMV on the date of death of your FIL. or it could have been the FIL estate which requires filing form 1041 and the gain/loss would likely pass out to your wife.   

[comrade_general]

Legally it was in my MIL name.  My wife's name wasn't on anything.  She wanted my wife to have part of the proceeds at closing so the attorney cut her a check and said she would get a 1099-S.  My MIL got a 1099-S too.  I'm thinking they issued us and my MIL a 1099-S to make sure they are covered.  I wasn't sure how I'd file this with TurboTax (if at all) and what version would I need.  Thanks for your help.    

[DaveF1006 · Accepted solution]

This is a complicated legal issue since your wife never owned the property but was gifted 1/2 of the proceeds. 

The issue is that your mother in Law needs to file a 709 Gift tax return to report the gift of 1/2 of the proceeds to your wife. Turbo tax does not handle the filing of this type of return. For your convenience, please refer to this link for a copy of the 709 form  and the instructions for filling out and mailing it. It cannot be electronically filed. Your MIL would file this gift tax return if the gift of 1/2 of the proceeds was more than $16,000. This needs to be filed before April 18 of this year.

Since this is a monetary gift of proceeds given to your wife rather than a gift of the apartment building, your wife does not have a reporting requirement to report the sale of the apartment building since the monetary gift was given after the sale was complete. Mike9241 did correctly mention this above. 

Your MIL would need to report the sale on he individual return. MarilynJoy  correctly lists the steps on how the sale should be reported. Please have her refer to those. It is important to note that the Fair Market Value on the date it was passed to your MIL is to be used as the basis. Be sure to have her add in the selling expenses to the basis as this will reduce the capital gains, if any.

Just an FYI, since your MIL gifted 1/2 of the proceeds, she will only report 1/2 of the sale on her return.  This will involve reporting 1/2 of the proceeds and 1/2 of the basis, including the selling expenses. Make sure she files the Gift Tax Return.

@comrade_general