What will I owe in taxes

[DMorgan24]

My brother and I just sold my uncles house that passed away in April. We both received 52,000. What can I expect to pay in taxes? 

[Bsch4477]

Assuming that the sale proceeds were equal or less than the fair market value of the property at the time of the decedent’s death you owe no tax since inheritance is not taxed. 

[DMorgan24]

Thank you!! 

[Hal_Al · Accepted solution]

Q. What can I expect to pay in taxes? 

A. Nothing.  When inherited property is sold, you only pay income tax on the capital gain ( profit), not the whole sale price. The capital gain is the difference between what you sold it for and your cost basis. The cost  basis of inherited property is the fair market value (FMV) on the date of death, not what the original owner paid for it. This is known as the stepped up basis.

Q. Do I need to report the $52, 000 on my tax return. 

A. Yes, if you receive a form 1099-S. 

Q. The house sold for less than the FMV.  Can I deduct the capital loss?

A.  Yes, usually, depending on how the house was used between the time you inherited it and the time you sold it.   If the house  sat vacant, it is classified as "investment property", and you can deduct the loss.  If there was significant personal use during that time (e.g. family members lived there), it is classified as personal use property and the loss is not deductible.  Note, it's how the heirs used the property, not how your uncle used it. 

[TomD8 · Accepted solution]

Note that only $3,000 of a capital loss is deductible against ordinary income.  Any unused loss can be carried forward to subsequent years.

Also, if you do claim a loss then you may want to get a certified appraisal so as to substantiate the home's FMV, in case your tax return is subjected to IRS audit.