figuring out adjusted cost basis of selling inherited property

[WinstonTM]

My brother and I inherited our father's property in 2011, appraised value for probate was $390,000 so my half of the fair market value was $195,000.  Brother died in 2017. House appraised then for $510,000. In 2022, I bought out widow of her half ownership, $275,000.  I made significant necessary repairs totaling $180,000.  In 2024, I sold the property for $788,000.  My selling costs were $53,318.  

1.  what is my adjusted cost basis to figure out capital gains tax?

2.  exactly where and how do I record this in turbotax?  Under investments, the only options are Proceeds and FMV at time of decedent's death.

3.  When I add the buyout, repairs, and selling costs, then subtract from the sale proceeds of $788,000, turbotax shows that I suddently owe $32,000 federal and $11,000 state taxes.  How can that be when the net proceeds are only about $134,000?  Our gross income is about $69,000.

[KrisD15]

To figure your adjusted basis, there would need to be some clarifications on the numbers you provide.

Had this been used as a rental or only as your personal residence?

[Edited 22/21/2025 I 4:00am PST]

[WinstonTM]

Thanks for your detailed reply.  To your questions:

1. In 2022, I paid $275,000 to buy out the widow's half after my brother (joint ownership) died in 2017.  $510 was the appraised value but we paid more than half to the widow.  Why?  We eventually had to launch a partition lawsuit to force her to settle (she kept changing terms) and the judge set the buyout at $275,000.

2.  $180,000 paid for major/necessary repairs: this was a 14-room 1842 farmhouse with a Pomeroy Foundation Historical Marker in front of it.  Completely rebuilt the rotted wraparound porch, replaced the leaking roof, replaced rotting siding/painting, installed gutters to alleviate leakage onto siding, replaced deteriorated dangerous driveway.  None of this was a typical improvement--they all needed to be done. The place was in horrible shape, my brother refused to pay for any maintenance and his widow also refused.  After settling the estate with the widow, we had to make these repairs or we'd lose the infrastructure.

3. The farmhouse was not rented during the five years of trying to settle the estate with his widow b/c of the dangerous shape it was in, the widow refused to pay anything towards repairs, and we didn't know how long it would take to settle the estate so couldn't promise renters anything long term.  Not relevant, but she also refused to contribute towards taxes, insurance, utilities, upkeep, etc.

4.  So, given #4, we had no rental income from 2017 to the sale in 2024.  Can we still claim the farmhouse as rental property as you direct us to do?

THANKS!!

[AmyC]

1. Your adjusted cost basis is the $195k from inheriting half + $275k you paid the widow +  improvements  See Publication 551 -Basis of Assets - IRS for more help. You had a lot of repairs. Here is an excerpt: 

Increases to Basis

Capital improvements:

Putting an addition on your home

Replacing an entire roof

Paving your driveway

Installing central air conditioning

Rewiring your home

Assessments for local improvements:

Water connections

Sidewalks

Roads

Casualty losses:

Restoring damaged property

Legal fees:

Cost of defending and perfecting a title

Zoning costs

2. You will report it under investments as Other, sale of a second home but follow these steps:

1. Select Other
2. Name, continue
3. Second home
4. Select that you purchased it - the inherited option simply makes it long term and your already is with the purchase date
5. continue filling in the boxes

3. You did make a profit on the sale. Be sure to view your forms and make sure your selling expenses are in there.

Reference: Where do I enter the sale of a second home, an inherited home, or land on my 2024 taxes?

To print or view  your forms:

• In desktop, switch to Forms Mode. 
• For online:
  1. On the left side, select  Tax Tools
  2. Select Print center
  3. Select Print, save or preview this year's return
  4. If you have not paid, select pay now.

My condolences.