Solved: We sold an inherited home in 2016 that had a mortgage at the time of sale. The mortgage was paid off. How does that factor in to the calculation of taxable gains?
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We sold an inherited home in 2016 that had a mortgage at the time of sale. The mortgage was paid off. How does that factor in to the calculation of taxable gains?

 
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Expert Alumni

We sold an inherited home in 2016 that had a mortgage at the time of sale. The mortgage was paid off. How does that factor in to the calculation of taxable gains?

The mortgage pay off is not a factor when figuring out gain or loss. The sale uses the cost or value of the property against the selling price of the property which already factors in the purchase with the loan proceeds.  In your case, as with any inherited property, you use value versus cost.

Inherited property usually has a stepped up basis which means the basis would be the value on the date of death, as long as there were no transactions prior to death where the property was transferred into any of the children's names by gift or sale.  You would use a divided portion of the basis as your cost when entering the sale if there were more than one beneficiary.  

  • To record your sale of this in TurboTax Premier follow these steps.
    • My Account > Tools > Topic Search > Type inherited home > Go
    • Use your settlement statement, or a K1 if applicable, for sales expenses including commissions
      • Mortgage interest, assuming this was not your main home, may be used as investment interest to the extent you have a gain any unused amount can be carried over to use against future investment income.
      • Property taxes, if applicable, can be used as an itemized deduction regardless if the property was your main home.
    • To record investment interest follow these steps:
      • My Account > Tools > Topic Search > Type investment interest deduction > Go
      • Continue to enter your information if applicable

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Expert Alumni

We sold an inherited home in 2016 that had a mortgage at the time of sale. The mortgage was paid off. How does that factor in to the calculation of taxable gains?

The mortgage pay off is not a factor when figuring out gain or loss. The sale uses the cost or value of the property against the selling price of the property which already factors in the purchase with the loan proceeds.  In your case, as with any inherited property, you use value versus cost.

Inherited property usually has a stepped up basis which means the basis would be the value on the date of death, as long as there were no transactions prior to death where the property was transferred into any of the children's names by gift or sale.  You would use a divided portion of the basis as your cost when entering the sale if there were more than one beneficiary.  

  • To record your sale of this in TurboTax Premier follow these steps.
    • My Account > Tools > Topic Search > Type inherited home > Go
    • Use your settlement statement, or a K1 if applicable, for sales expenses including commissions
      • Mortgage interest, assuming this was not your main home, may be used as investment interest to the extent you have a gain any unused amount can be carried over to use against future investment income.
      • Property taxes, if applicable, can be used as an itemized deduction regardless if the property was your main home.
    • To record investment interest follow these steps:
      • My Account > Tools > Topic Search > Type investment interest deduction > Go
      • Continue to enter your information if applicable

View solution in original post

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