Sale of moms house who passed away.

[taxesohmy2017]

Our mom passed away in Dec 2020.  We sold her house to cash buyers for $95K.  Me and my brother each received a 1099-S, showing our portion which comes to $47K each.

My question is, is this considered inherited property? I know I need to claim the 1099-S, but first I need to figure out the FMV, but what if there is a loss, am I entitled to claim a LOSS on the sale of my mom's house? If there is a gain, I know I will pay taxes on it.  

I was reading the IRS publications, however still unclear.

We did not sell it any relatives, yes, we lived in when we children but not as grow adults, does that disqualify us for the personal use?

No appraisal was done, so we don't have a starting FMV or appraisal.  The best thing I was going to do, was look up the home value on the house around the time mom passed and take that value as FMV. Would that be acceptable? 

[Opus 17]

You don't give enough information.  How did your names get on the title for you to legally sell the home?  Was it given to you while your mother was alive, or was it put in your names after her death? 

[Anonymous_]

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@taxesohmy2017 wrote:

We did not sell it any relatives, yes, we lived in when we children but not as grow adults, does that disqualify us for the personal use?

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That situation does not disqualify you for personal use. The relevant time period is after the passing of your mother until the date the property is sold to an unrelated third party.

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@taxesohmy2017 wrote:

The best thing I was going to do, was look up the home value on the house around the time mom passed and take that value as FMV. Would that be acceptable? 

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If the IRS ever challenged the fair market value as of the date of death, your figure might not be acceptable. An appraisal by a certified real estate appraiser is the only officially accepted method of valuation. However, the likelihood of a challenge is remote.

[Anonymous_]

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@taxesohmy2017 wrote:

My question is, is this considered inherited property?

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For federal income tax purposes, the relevant issue is whether or not the property was acquired from a decedent, per Section 1014.

If you and your brother acquired the property prior to her passing, then the property was not "acquired from a decedent" (unless the circumstances indicated otherwise for the purposes of a stepped-up basis).

[taxesohmy2017]

We did not acquire the property until after our mom passed away.  The house was in our mothers name up until she passed away.  We sold it to a cash buyer.  

[Opus 17]

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@taxesohmy2017 wrote:

We did not acquire the property until after our mom passed away.  The house was in our mothers name up until she passed away.  We sold it to a cash buyer.  

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You inherited the home with a stepped up basis equal to the FMV on the date she died.  If this was close in time to the sale and there were no major changes to the real estate market, the selling price is probably a fair indication of the FMV.  If there was a delay and the market changed in that time, the selling price might not be a good estimate of the FMV.   You can obtain a retroactive appraisal from a professional appraiser who will use historical data to determine the appraised value on the date of your mother's death.  

You may be wanting to claim a large loss since you sold it to a cash investor.  I'm guessing you sold it to an investor or a flipper because it was in poor condition, or you wanted fast cash, and you may think you sold it for significantly less than its real FMV.  However, FMV also takes into account the condition of the property (such as, needing substantial repairs or cleaning).   The fact that you sold it for a certain price is a pretty strong indication that the FMV is at or near that price.  There are some situations where you might sell below FMV (you are in a hurry to sell because you have to move for a new job, for example) but this does not sound like the case.  If you try to claim a large loss, you will have to be very careful to document the condition of the property and sale, in case you are audited.  Here is what the IRS says about FMV.

https://www.irs.gov/publications/p561

If the only thing you did is sell the house (or maybe fixed it up), you might be able to treat it as investment property and deduct a loss, if you had one.  (If you sold the home for exact FMV, then you may still have had a small loss from the real estate commission, since you can include the commission as an adjustment to cost basis.)  You would be claiming that from the date you inherited it untill the date you sold it, it was an investment because you never lived there, you just fixed it up to sell it.  

Otherwise, it's a personal sale. 

[DianeW777]

Yes this is inherited property because it was not you home while your mother was alive aside from your childhood.

Inherited property that is sold is ALWAYS considered with the long term holding period regardless of when it was inherited.  This allows the capital gain tax rates for any gain, which is lower then regular tax rates.

The sale of inherited property can be entered using the following instructions.  

1. Open or continue your return (you can choose the Search box and type 'sale of second home' then use the Jump to link to enter your inherited sale) or follow the menu.
2. Under Wages & Income scroll to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Answer Yes on the Did you sell any stocks, mutual funds, bonds, or other investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the OK, let's start with one investment type screen, select Other, then Continue
5. On the Tell us more about this sale screen, enter the name of the person or institution that brokered the sale
6. On the next screen, select  Other (choose this also for inherited homes) then select  I inherited it under How did you receive this investment?

[taxesohmy2017]

Our names were never on the deed, however it was on trust through Wintrust.  So once mom passed away, all we had to do was show them the death certificate and then they placed our names as owners on the deed then, and we immediately sold it.  We each received our portions of 1099-S.

So, I feel it was inherited to us.  We are contacting our lawyers and see if possible the people that did buy it, if they had it appraised and see if we can obtain a copy.

What I explained in the first sentence, does that still sound inherited property? I am thinking yes, but could use some honest input.  Thank you again.

[Vanessa A]

Yes, it is inherited property.  Inherited property is property  you receive at the death of the original owner. 

You could also look at something like realtor.com to look at the selling prices of similar homes in that area near the time of your mothers death. 

[taxesohmy2017]

thank you.

[taxesohmy2017]

We were able to get a FMV. I am showing a loss of $4500. Am I able to take capital gain of $3000 for 2021 and the remainder in 2022 OR I can not take the loss because it was an inherited from my mom. I reading other posts from individuals with situations. One expert it is a loss you can take and another expert said the loss can not be taken.

Can someone please clarify this. If I am not entitled to take I am ok with. I am trying to do what is right. Thank you 

[Anonymous_]

You can recognize the loss as long as the property was not used for personal purposes (e.g., a beneficiary or family member lived there after your mom passed away).

[taxesohmy2017]

Me and my brother did not live in it. The newphew kept breaking into the house and stealing items that did not belong to him and breaking things.  We would call the police and they said his address was on the drivers license and couldn't do anything about.  However the police did arrest him for something else and while he was in jail we hurried up and sold the house. 

So does this disqualify taking a loss?

Also are we able to reduce the sale price by any closing cost or title fees from the sale closing statement or do just subtract the step up basis from the sell price.  

[Anonymous_ · Accepted solution]

The loss would not be disqualified for that particular reason.

You can reduce your sales price by your selling expenses (such as title fees and other costs).

[taxesohmy2017]

Thank you