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Returning Member

Is the money received from the sale of inherited property taxable???

Capital gains

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Employee Tax Expert

Is the money received from the sale of inherited property taxable???

@Makeitmore Gift tax (if any) would be paid by the person making the gift, not the receiving person.

 

Inherited property receives a stepped-up basis to the Fair Market Value (FMV) at the date of death. You would pay capital gains on any appreciation the property might have had from the date of death to the date of the sale. Generally, if you have sold the property close to the date of death there won't be much of any capital gain taxes to be paid. However, you do report the sale - gain or not. See below for reference.

 

IRS overview of Stepped-Up Basis

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Level 15

Is the money received from the sale of inherited property taxable???

Q.  Is the money received from the sale of inherited property taxable?

A. Simple answer: No.  But, taxes aren't simple.  What may be  taxable is the "capital gain" on the sale of the property.  The capital gain is the difference between what you sold it for and the cost basis. Cost basis is usually what you paid for the property. But, in the case of inherited property, cost basis is the fair market value on the date of death.

 

Q.  Do I have to pay taxes on the $24,333.73 (cash to seller) that I received from the sale?

A. No.  That is not your capital gain.  You sold it for $27,000 (your half of $54,000).  After expenses of sale you netted $24,333.73.  Your cost basis was $37,500 (half of $75,000).  You did not have a capital gain. You had a capital loss of $13,166 (37,500 - 24,334 = 13,166).  You get to deduct the capital loss on your tax return**.

 

**A capital loss on personal use property is not deductible.  Most inherited property, even your parent's home,  is considered investment property unless you (the heir) used it for personal use.

 

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New Member

Is the money received from the sale of inherited property taxable???

There is nothing I've ever found in tax code saying original owner.

I have in fact seen the word owner only.

The cost basis is always bumped up to reduce tax liability.  That is the exact purpose from Congress.

Not once but every time.

Income received in trusts are taxed 

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New Member

Is the money received from the sale of inherited property taxable???

I disagree totally.  The assets cost basis is bumped up on the date of the owners death. 

That is Congress intent to limit liability.

I have only seen in tax code the word owner.

Some people think it's original owner.

What's the point of limiting the liability once. It also limits the amount you can right off as a loss.

Show me the code.

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New Member

Is the money received from the sale of inherited property taxable???

Absolutely wrong.  It is theFMV of the new owner

Tax code says owner not original.

The whole purpose from Congress  is to limit liability on the beneficiary.

What your saying is limiting it on the first beneficiary.  Again nothing in code states this.

Subject to interpretation. Be

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Expert Alumni

Is the money received from the sale of inherited property taxable???

You do not pay tax on the full amount that you received.  You pay tax only on any gain from the transaction.  The gain (or loss) is calculated by subtracting your net proceeds from the Fair Market Value (FMV) of the property.

 

The FMV that you will use is the value of the property on the date that you received it (if it was transferred prior to her death, as a gift) or the date of your mother's death (if inherited.)  

 

You should contact a real estate professional for some guidance in determining the approximate value.  Once you have determined the FMV, here is how you will report the sale in TurboTax:

 

  1. Login to TurboTax.com
  2. Click on Wages & Income (you may need to first click on "Take me to my return" or "Pick up where you left off."  
  3. Scroll down to the section Investment Income.
  4. Click on Show More.
  5. Click Start beside Stocks, Mutual Funds, Bonds, Other.
  6. Indicate that you did not receive a 1099-B.
  7. Proceed through this section of the program selecting Second Home when asked What type of investment did you sell?  
  8. Enter the data requested by TurboTax (report only your share of the proceeds and an equal portion of the basis).

If there is a loss on the property, it will not be deductible.

 

Please accept my condolences on the loss of your mother.

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New Member

Is the money received from the sale of inherited property taxable???

My 3 siblings and I inherited unimproved property in 1989. We just sold it this year.  The property is definitely worth more now than it was in 1989.  

What would you recommend as the best way to determine the FMV?

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New Member

Is the money received from the sale of inherited property taxable???

To be clear, the property was bought several years before we inherited it. So the amount paid for it is probably not the same as the value when inherited.

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Expert Alumni

Is the money received from the sale of inherited property taxable???

The basis of property inherited from a decedent is generally the fair market value (FMV) of the property on the date of the decedent's death.  For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. You could also use the property tax assessment for 1989 (which is usually inaccurate) or contact a historical property appraiser.

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Level 15

Is the money received from the sale of inherited property taxable???


@catbill wrote:

What would you recommend as the best way to determine the FMV?


Secure the services of a qualified appraiser, if you want to take the most conservative approach.

 

A qualified appraiser, in the case of real estate appraisals, is generally an appraiser who is licensed or certified for the type of property being appraised in the state in which the property is located.

 

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New Member

Is the money received from the sale of inherited property taxable???

Thank you for such a quick response.

Unfortunately, the executor would not have known the FMV and in any case is no longer alive. 

It has been suggested that we ask a realtor to prepare a statement that estimates the value of the property in 1989. I don't know what might be involved. What do you think about that?

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Expert Alumni

Is the money received from the sale of inherited property taxable???

The tax assessor's office may have records of what they valued the property to be. Some places list every home for years, you may get lucky with an online search.

 

A realtor could locate records of sales in the area possibly.

 

Any neighbors that were there could give a letter of the value of their house.

 

It is  recommended an appraisal be done within 6 months of the passing. You might be able to find an appraisers office that did it or could possible give  you a rough idea based on other appraisals in that area at that time.

 

If the IRS conducts an audit, they will want to see how you made a reasonable decision for the basis listed on the tax return.

 

 

@catbill

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Level 2

Is the money received from the sale of inherited property taxable???

FMV $ 290,122 bought out my brother for $ 150,000 and replaced roof for $ 8,500.   Do I total this as $ 448,622 and that is what I put on the tax form as total Value?

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Level 15

Is the money received from the sale of inherited property taxable???


@carltoons wrote:

FMV $ 290,122 bought out my brother for $ 150,000 and replaced roof for $ 8,500.   Do I total this as $ 448,622 and that is what I put on the tax form as total Value?


If you and your brother each inherited one-half, then you use half of the FMV on the date of death for your share, plus the $150,000 you paid your brother for his share (assuming that was FMV and not a bargain sale), plus the $8,500 you paid for the roof (as an improvement).