Assistance with Inherited Property

[LisaK_Tx]

My mother passed away in Sep 2025, my sister, brother and I inherited her home.  It sat empty for 2.5 months until we sold it Dec 2025 (planned on using it as a rental).  I had rental property insurance on it for that timeframe.  

We took a loss ... the stepped-up value was $242,784 however we sold it for $184,500.   We split the proceeds but would still have a loss... I think we need the form 8949?  

Any help is appreciated

[guywong]

Was the property actually rented out and received rental income?  If it wasn't rented out, I probably wouldn't treat that as a rental.  If it was rented out, then the sale should probably be reported on a Form 4797, Sale of Business Properties.

Who sold the property, the three of you or your mother's estate/trust?  Whose name is on the 1099-S?

If it was sold by the estate/trust, then a Form 1041 should be filed to report the sale.

If title had changed to the three of you and the three of you sold it as undivided 1/3 interest owners, then yes, report your respective share on your own 1040 tax return.  If you don't treat it as a rental, then yes, report that on a Form 8949 and check the "F" box.  It's long term capital loss.  

Add all the selling expenses to your cost basis.

[LisaK_Tx]

Hi,

It wasn't rented out, but we had it open to rent or sell for those 3 months.  The sale just happened to happen first.  

The property transferred to the three of us and we each have a 1099-S for our portion.

Which way will lower our AGI or give us a deduction or credit? 

Thanks!

Lisa

[ThomasM125]

If there was no personal use of the property, you can report as the sale of investment property as follows:

You enter investment sales in the Wages and Income section of TurboTax, then Investment Income, then Stocks, cryptocurrency, Mutual Funds, Bonds, etc... Skip the section where it asks if you want to upload your tax documents. Choose Other as the type of investment you want to enter. You'll come to a screen where you can enter in your sales proceeds and cost basis. Choose Land (other investment purpose) as the type of investment sold. You will get capital loss treatment on form 8949.

[LisaK_Tx]

Hey, 

Thank you ... but my brother and sister will need to do the same on their taxes with their 1099-S using the same FMV and their portion of sales expenses, correct?  When I did this, it's telling me that I'll be rolling over $225K in capital losses in future tax years .... but is that number right when my siblings will be entering the same FMV? 

Also, are we allowed to claim the mortgage interest and property taxes as it was owns as of 12/31/2025? 

I greatly appreciate your assistance.  

[JamesG1]

You will each be reporting one-third of the stepped up value of $242,784 as the cost basis and one-third of $184,500 as the sales price.

Your capital loss will offset other capital gains reported on your income tax returns, then $3,000 will offset your ordinary income.  The remaining balance will carryforward to future years.

Your IRS form 1099-S may reflect the full value so retain those forms and your calculations with your tax information.  A tax authority may have a question about the difference at a later time.

Mortgage interest and property tax may be claimed for the period between the date of death through the sale of the property.

@LisaK_Tx 

[LisaK_Tx]

Thank you VERY much for this ... I was thinking that was how to do it; however, TT doesn't asked for the sales price and the three of us also had different sales expense amounts ... 

Some have said to add the shared expenses to the FMV and then anything over annotate in the sales expense line item ... that sounds correct... your thoughts? 

Very Respectfully,

[DianeW777]

Yes, that is the correct way to handle the sale. The inherited value plus the shared expenses less any individual sales expense. The selling price less that result is the loss that will be reported on Schedule D. If the results on Schedule D is overall loss, then as indicated the maximum loss allowed per year is $3,000.  Any remainder will be carried forward to 2026 and possibly future years, until it is used up.

@LisaK_Tx