Sale of land that was inherited

[jfstein]

My wife inherited a piece of land in another state(Arizona) in 2016. She sold the land in 2021. We received a 1099-s which shows the date of closing & the gross proceeds. What do I need to do to determine cost basis? Her mother died in 2009 but only received the land in 2016. 

[AmyC]

The basis will be the value  at date of death, 2009. You can use your local tax assessor's records, a real estate agent, any reasonable information from 2009.

[jfstein]

Even though she didn't get the quick claim deed processed until 2017? The property was in the estate trust until then.

[DianeW777]

Yes, the date of death is the day the value is placed on the property that is inherited. The beneficiary uses that value as the cost basis against a selling price in the future, plus any additional capital improvements after it was inherited. 

• IRS FAQ Inherited Property Basis

[jfstein]

Makes zero sense to me. We did not even know this was gonna be inherited to us until 2016! Only paid taxes on it for 2017 thru 2021. How could WE be responsible for any capital gains on something we did not have in our name until 2016? It's just 12 acres of desert land in southern Arizona! Sold for 6k, net proceeds of 4700.

[DianeW777]

There is good news in that capital gains does apply to the gain and that allows a tax rate that is lower than your regular tax rate. And as beneficiary you do get a cost basis even though you didn't pay for the property, simply because you inherited it.

The cost basis is saving tax dollars because if the IRS didn't allow this cost basis (and at fair market value, not the cost to the decedent), your cost basis would be zero.

The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $40,400 for single or $80,800 for married filing jointly or qualifying widow(er).

A capital gain rate of 15% applies if your taxable income is more than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

[jfstein]

What is the value considered? Value or assessed value? The value on the last tax bill shows the current value of $14,560 but the assessed value is $2184.

[ColeenD3]

The Fair Market Value on the date of death is the value you need to know. The assessed value on tax bills is frequently incorrect. You could contact a realtor for assistance in this.

[jfstein]

Contacted a realtor who does not have access to records beyond 5 years and county treasurer is of no help. Guess I will just have to estimate and hope I don't get audited.

[LeonardS]

Generally, the county treasurer sends out the tax bill and does not track past property values. You should contact the county assessor for information on the value of the land your wife inherited in 2016.  The assessor will have two values the assessed value and the market value you will use the market value as the property's basis when calculating any gain or loss on the sale of the property in 2021.

[jfstein]

Heard back from county assessor and they said that since my wife did not appear on any tax records until 2016, that is the year to use. Only problem is the document shows an FCV of $14,560 and assessed value of $2184. Property was sold in 2021 for $6k. What do I enter as cost basis? Getting frustrated!!

[LeonardS]

You will use the FCV of $14,560 as the cost basis.  For property tax purposes, "Full Cash Value" (FCV) is synonymous with market value.  The assessed value is not used for calculating the gain or loss on the sale. 

To report the sale of your vacant land in TurboTax follow these steps: 

1. Open or continue your return
2. In the search box, enter sold second home 
3. Click on Jump to sold second home in the results box
4. On the page Did you sell any of these investments in 2021?  Answer yes
5. On the page OK, let's start with one investment type check the Box for other
6. On the page Tell us more about this sale enter “sale of vacant land” in the Name box
7. Answer all the questions on the page Now, enter one sale for sale of vacant land Enter the gross 1099-S in the Proceeds box and your basis (FCV) in the Total amount paid box
8. On the page Let us know if any of these situations apply to this sale check the box you paid expenses and enter your sale expenses
9. Continue to the page Your investment sales summary where you will see your Total gain if any on the sale of your vacant home. 

Vacant land not used for investments purposes is personal use of a capital asset. A gain on the sale is reportable income, but a loss is NOT deductible

This link Where do I enter the sale of a second home, an inherited home, or land on my 2021 taxes? has information you may find useful.

[jfstein]

Apparently, I do not have the correct version of TurboTaxas I have the "Deluxe" version

To report the sale of a second home, an inherited home, or land, you’ll have to use TurboTax Premier, TurboTax Self-Employed, or TurboTax Home & Business

[jfstein]

Apparently, I do not have the correct version of Turbo Tax (Deluxe) to enter this per TT website. When I clicked on the link, it says 'To report the sale of a second home, an inherited home, or land, you’ll have to use TurboTax Premier, TurboTax Self-Employed, or TurboTax Home & Business' So, I paid an extra $30 to upgrade to Premier but there is nothing different in entering what I have already entered! WHY??

[GeorgeM777]

TurboTax Deluxe does not contain Form 8949 Sales and Other Dispositions of Capital Assets.   To enter the information about the sale of the inherited home, you will need TurboTax Premier which does prepare Form 8949. 

The sale of the inherited home is the sale of a capital asset, and thus, its sale is entered on Form 8949.  Because TurboTax detected that you were entering information about the sale of a capital asset, it recommended that you upgrade to TurboTax Premier.  

@jfstein