My brother, sister, and I sold an inherited home (70 years old and in very poor condition) in North Carolina. My brother and sister are residents of NC, but I am not a resident nor do I have any income other than gains from the sale of the home. The home was appraised shortly after the death of our father and adjusted to the date of death. The appraised cost basis is $75,000. All numbers are hypothetical. For simplicity, I am rounding all numbers to the nearest thousand.
Cost Basis
Sibling 1: $25,000 Inherited Cost Basis (1/3 Appraisal), $40,000 (Remodeling expenses) = $65,000
Sibling 2: $25,000 intherited Cost Basis (1/3 Appraisal), $5,000 (Remodeling expenses) = $30,000
Sibling 3: $25,000 Inherited Cost Basis (1/3 Appraisal), No remodeling expenses = $25,000
In addition, we had two year's worth of property taxes, utilities, and homeowner's insurance. Closing costs (real estate, attorney, & all fees) = $3000. Sibling 1 paid for all property taxes, utilities, and homeowner's insurance.
The sale price is $200,000. I believe this sale is a long-term capital gain distribution (>2 years) and my cost basis is $65,000 (Sibling 1). We are splitting the net equally. The distribution at closing was set up to account for expenses, so Sibling 1 will get one-third of $200,000 - $3000 (real estate & closing fees) plus improvements ($40,000). Sibling 1 will get a check for approx. $ 105,000 (($197,000/3)+$40,000)
1. Does sibling 1 report the gross proceeds as $105,000 and subtract the $65,000 cost basis? Siblings 2 and 3 follow a similar process with their share. We do not know if a 1099 will be issued, but the form, if issued, will most likely show the total gross proceeds and not match the above split amounts.
2. Does sibling 1 (non-resident of NC) have to file an NC state income tax return?
3. Are the utilities and other expenses considered part of the cost basis?
4. Is a termite inspection and treatment part of the cost basis if the title company requires the work prior to closing?
