Sold inherited property with capital gain and reported it on schedule K1. Is actual check amount received from the sale also taxable? or is this check amount tax free?

[PaulaM · Accepted solution]

The taxable amount (capital gain) reported on the K-1 is the amount that you include on your personal return. The check proceeds are not entered. 

There is a stepped up basis that takes place when you inherit property, so the reported gain can be little to none, or less than the amount of your check proceeds.

[racapistrano]

A bit confused, some say need to report check amount as an investment and others say no need to report cash distribution from sale. What are the prerequisites to be considered as an investment and as tax free distribution?

[PaulaM]

If the property was sold and distribution was reported on a K-1, then you only enter the K-1 in your return. If the property was sold outside of an estate/trust (title passed  to you first then you sold), the sale is reported in the Investment section with gain (if any) being reported. But no, the sale proceeds themselves are not taxed in either situation.

Ex: Inherited Property cost basis is before death $100k and stepped up basis is $150K after death (FMV), Sales Proceeds is $150K. Sales $150k- Stepped up basis $150K = 0 gain.

Sales proceeds are only used to calculate gain. They are not taxed.
Hope this clarifies.

[racapistrano]

Thank you for your help  🙂

[PaulaM]

You are welcome 🙂