Question on 1099-S Inherited property sale

[itdcomplicated1]

I have a similar situation and not sure how to report it or if I have to.
Mother passed away 2016. In her will she left her 50% of my parents’ house to 5 of us.
My father never executed the will.
Last year he was injured, turned over executor duties to me with limited power of attorney to sell the home. When the home sold in 2022 I distributed the proceeds to the beneficiaries per her will.
I received a 1099s for the proceeds to me as transferor/executor LWT for my mother. Proceeds were less than $250,000. My father received his 1099s for the other half.
How should this be reported or does it need to be reported?

[PattiF]

This does need to be reported on your tax return and also on the returns of the other four of your siblings, if that is who you mean by the 5 of us. 

The 1099-S is divided five ways using the nominee process. You would create substitute 1099-S forms to give to the other recipients of the proceeds.

If you received one Form 1099-S for the full amount of the sale, then you may want to nominee half to the person whose social security number is not listed on the form.

Nominee returns. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096-Transmittal 
• Form 1099-S

This will allow you to enter only one fifth of the half of the gross proceeds on your return.

Then you need to determine the cost basis of the house that was sold. This would be the Fair Market Value at the date of the death of your mother. This can be estimated by searching for similar properties in the area that sold in 2016, or you could ask the realtor who helped with the sale of the house.

There are amounts that can be added to the cost basis.  The bigger your basis, the smaller your capital gain, and that means less tax, or possibly a capital loss.

If any major repairs or updates were needed to sell the house, these would be added to the basis.  

You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.

The following are some of the settlement fees and closing costs that you can include in the original basis of your home.

Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.

Each of you would use 1/5 of the shared 1099-S proceeds, and 1/5 of the basis of the house.

Form 1099-S isn't entered directly into the tax program. 

Enter the proceeds, the date of the sale, the cost basis of the property, and the date that you inherited the property. 

Click on Federal > Wages & Income

1. In the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other.  If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link. 
2. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 2022?  Click the Yes box.
3. On the screen,  OK, what type of investments did you sell? mark the Other box and click Continue.
4. When you get to the screen, Now we’ll walk you through entering your sale details, enter the details of the sale.  You will be able to select the type of investment in the first box [second home, land, etc.]  
5. Enter the requested information and click Continue when done.

@itdcomplicated1 

[emceebe]

I also received a 1099S, and wonder if the title company should NOT have done that...

3 siblings  inherited a home and other cash from a mom who died, while in a revocable trust (Florida). We got 1/3 share each as cash, and did not think the HOME was ever put in our names, not sure, but now got a 1099 -S for each of us and don't know if it is NOW IRS taxable because of that. Entering it in Turbo seems to make it very complicated.. Do I pay Fed Tax?   How do I enter, NOT as sale of my main home, and if it has a STEP UP VALUE, I understand that might be taxable.

Did the Title Company do us a disfavor by FIRST putting her home in our names, if that is what they did?.

[PattiF]

There are some steps in TurboTax to enter the sale of an inherited home. The steps will be listed and will be easy to follow.

You need to determine the fair market value at the date of death to enter as most of the cost basis. If the death of your mother was in the last year, then the cost basis will be the selling price. There are some costs from the sale that can be added to the basis which may cause a loss which is good tax-wise.

The Title Company did not do a disfavor to you and your siblings by issuing a 1099-S to each of you. It will make it easier to report your taxes.

The information that you need to enter is 

1. Description - Address of house
2. Date sold - Date on 1099-S
3. Date acquired - Date of death
4. Sale proceeds  - Amount on 1099-S
5. Cost basis - Same as sale proceeds plus any expenses paid to get the house ready for sale and some expenses that are listed on the settlement statement can be added to the basis. These include Title fees, real estate commissions documentary stamps, credit report costs, costs of an abstract, transfer taxes, home inspection, flood certificate, and attorney fees.  All of the additional expenses are divided by three and that amount would be added to the proceeds for each sibling.

To enter this in your return:

• Click on the Wages & Income tab
• Next click on I'll choose what I work on
• Scroll down the screen until you come to the section Investment Income
• Chose Stocks, Mutual Funds, Bonds, Other and select Start or Update
• The first screen will ask if you sold any investments during the year, answer 
• Did you get a 1099-B or a brokerage statement for these sales? Answer No
• Tell us about this sale, Click I'll enter one sale at a time
• The drop-down boxes can be filled out with the details of the house sale from the 1099-S and other house expenses listed in No. 5 above. This will be a short-term sale if it was less than a year since your mother died.

1. Date sold - your records
2. Date acquired - from your records
3. Sale proceeds -your records
4. Cost basis - FMV at the date of death plus other expenses listed in No. 5 above.

We are sorry for the loss of your mother.

@emceebe 

[emceebe]

Thanks for a rather clear response to my  question.  I have just one thing that maybe you could clarify:

Inheritance is NOT taxed at the Federal level.  Is this correct?

If this house WAS sold 9 months after death, and I enter the 1099S, will I probably have to pay tax the the IRS?  I will follow your instructions provided earlier, and maybe TurboTax itself will answer  this question.  When I questioned a realtor, they thought I would only be liable for STEP-UP value on that home...

Again, thanks for a quick response!!

Mike

[tagteam · Accepted solution]

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@emceebe wrote:

Inheritance is NOT taxed at the Federal level.  Is this correct?

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In your case, that would be correct in terms of simply inheriting the house. 

However, since the house was sold, you need to determine your basis and subtract that from the sales price (less selling expenses). 

In this instance, the basis would be the fair market value of the house as of the date of death of the decedent. If the sales price (less selling expenses) was more than that value, you have a gain that would be subject to taxation.

If the sales price (less selling expenses) was lower than the fair market value at the date of death, then you have a loss which could be deductible depending upon how the house was used (if held for investment, the loss could be recognized as a long-term capital loss).