Capital Loss on Inherited House

[syoung123]

Hello, My wife inherited a house from her mother and sold the house at a loss in 2024.  I know that for primary home and second home,  If the total of cost basis plus selling expenses are higher than the sales price, we need to zero the loss out and cannot take the loss on selling the house.  But for inherited house, can we report loss on the selling the house and use the loss to offset capital gains on other assets such as stocks reported on Schedule D and form 8949?  If we can report a loss (instead of zero), is there a limit on the loss on the line item for the sale of this inherited house?  I read the maximum capital loss is $3,000.  Is this amount the net of all the capital gains and losses on all the assets?  So if the loss on the inherited house is $6,000, and the capital gains on other stocks and assets are $10,000, do we subtract the $6,000 loss from the $10,000 capital gains, and report a net capital gain of $4,000?

Also, how do I input the loss in TurboTax?  Where is the section to input inherited house in TurboTax?  And what is the code to put into column F of form 8949 ?

[MindyB]

It depends. ‌An inherited house is considered investment property and you can deduct the loss on the inherited property, but only if there was no personal use after your mother-in-law passed away - it was simply held between inheritance and sale). The sale also needs to have been made to an unrelated party in an arm's length transaction. 

The $3,000 you are referring to is the amount net capital losses may be used to offset ordinary income. ‌In your example, yes, your gain is $4,000 and the $3,000 limit doesn't apply.‌ If we use your figures, but imagine there was $0 capital gain, you could use $3,000 of the $6,000 loss to offset this year's ordinary income, and the remaining $3,000 would be a capital loss carryover. ‌The carryover can be carried forward to future years to offset any capital gains and ordinary income.

Here's how to report this in TurboTax Online:

1. Navigate to Wages & Income > Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) > Add/Edit
2. Add Investment
3. Choose "Enter a different way"
4. Choose Investment type of Other
5. Add a description
6. You will be asked what type of investment, choose "other". ‌Also, indicate this was inherited.
7. Proceed to enter the rest of the information.
8. Column (f) can be left blank

[syoung123]

Thank you for your reply.  To clarify:

1.  The inherited house was sitting empty from the day my wife's mother passed away and date of sale.  The only thing is my wife and her sister spent one or several nights there at different occasions when they cleared out the contents inside the house, cleaned and repaired.  Does it considered as "personal use" and therefore cannot deduct the loss?

2.  For my example of $6,000 loss, it the house is qualified as investment property (that #1 above is ok for them to spend some nights there for cleaning and repairs), the loss can be applied to capital gains as well as ordinary income?  My earlier example was other capital gains were $10,000, house loss is $6,000, so the overall capital gains would be $10,000 - 6,000 = $4,000.  But if the capital gains of other assets reported on 8949 are only $5,000, the net loss ($5,000 - 6000 = -1,000) o $1,000 can be applied to reduce the other income such as wage, interests and dividends, so no carryover to next year is needed.  I know TurboTax woud calculate all these, but I just want to understand these numbers independently.

3.  With the TurboTax input, I take it TurboTax would put the "description input = inherited house" on form 8949?  Would TurboTax also out a code (which one) on column F, or would it be blank like you reply seems to indicate?

[DianeW777]

No, their time spent clearing out the house does not count as personal use days.

Yes the loss on the inherited home would be used to offset your gains from other exchanges or sale.

Yes, column f, Form 8949, Part II would be blank.

@syoung123 

[syoung123]

Thank you for your replies.  I just saw an older post on TurboTax community that said to fill the form 8949 as follows:

Part II – check box F – long term gain/loss basis not reported on 1099B (The sale was reported on 1099S)

Column b date acquired – put in “INHERITED”

Column d proceeds – sales price on 1099S – i.e, $100,000

Column e cost or other basis – step up basis on date of death plus improvements from that date to sale date – i.e., $98,000

Column f codes – code “E” – because 1099S only shows the sales price, selling/closing expenses not shown on 1099S, so the applicable expenses need to be in column g as adjustments

Column g adjustment – put in closing cost on settlement statement plus other qualified selling expenses,  show as negative amount – i.e., ($8,000)

Column h gain/loss – column d minus column e plus column g = 100,000 – 98,000 + (8,000) = (6,000)

Is this the correct way to input and fill out form 8949?

[JamesG1]

Sale of a second home is treated as a sale of an investment even if the sale is reported on an IRS form 1099-S.  See this TurboTax Help.

In TurboTax Online Premium, follow these step.

1. Down the left side of the screen, select Federal.
2. Down the left side of the screen, select Wages & Income.
3. Click the down arrow to the right of Investments and Savings.
4. Click to the right of Stock, Cryptocurrency, Mutual Funds, Bonds, Other.
5. At the screen Let's finish pulling in your investment income, select Add investments.
6. At the screen Let's import your tax info, select Enter a different way.
7. At the screen, OK let's start with one investment type, select Other, Land, Second homes, Personal items.  Click Continue.
8. At the screen Tell us more about this sale, enter the name.  Click Continue.
9. At the screen Now, enter one sale, enter the details of the sale including sale of second home, I inherited it, sales proceeds, cost basis and sales expenses.

[syoung123]

Hello, to clarify, this is not a second home, it is an inherited house.  To my understanding, losses on sales of main home and second home are not allowed, the net "loss" would be adjusted in column G (?) so column H would be "0" on form 8949.  for inherited house,  an earlier reply to my post indicated the loss can be deducted against my other capital gains and even the incomes.  How would Turbotax recognized this is "inherited house" vs second home when I do the input?

[ThomasM125]

When you report the sale, enter for the type of property sold Land (other investment purpose). Then the loss will be reflected on Form 8949.

[syoung123]

Hello, the TurboTax input section provided by MindyB, JamesG1, and ThomasM123 appear to be different.  Please see above previous replies.  I am using the Premier PC desktop version.  Which instructions should I follow?  Thank you.

[DianeW777]

The following steps will show you how to enter your sale in both TurboTax versions. To enter your sale in TurboTax, follow these steps. Click this link for more information. Where do I enter Investment Sales?

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
   • TurboTax Desktop: Search for investment sales and then select the Jump to... link. 
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
3. Answer Yes to the question Did you sell any of these investments in 2024? (or Okay! to Time to kickoff your investments!).
   • If you land on  the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.

@syoung123 

[syoung123]

Hello, I am still a bit uncertain about inputting loss of sale of an inherited house.  Below shows the data and my TurboTax input attempt.  Please advise.  Thank you.

Data –

Inherited house, sales price on 1099-S is $100,000.  This is the only amount shown on 1099-S, and there are no other amounts such as closing costs on this form.

Appraised value at time of death - $90,000

Improvements after time of death - $3,000

Closing costs - $6,000

Repairs and maintenance such as well pump replacement, siding repairs, and lawn mowing from date the house was advertised for sale to date of sale - $7,000

Sale date – 5/10/2024

Below was the input that I used - one earlier post told me to choose “other”, another post told me to choose “land (other investment purpose)”.  Which option is correct to use?

“Wages and Income” Topic

“Investment Income” section – choose the Stocks, Crypto….. line

Next screen – click the add sales button

What type of investment did you sell - Choose “Other”

How did you receive this investment – choose “I inherited it”

Description – house address

Date sold – sales date on settlement stmt, 5/10/2024

Proceeds – sales amount on 1099-S, $100,000

Fair Market Value – appraised at time of death, $90,000

Next screen –

choose - I paid sales expenses not included in the sales proceeds on form (1099-S)

There is only one input box designated for sales expense.  How do I input the improvements of $3,000, closing costs of $6,000, and repairs and maint. costs of $7,000. Total would be $16,000.  Do I put the whole $16,000 as sales expenses, and thereby as “adjustments”?  I did that as a test.  Form 8949 shows the following;

a – description - house address

b – date acquired – INHERITED

c – date sold – 5/10/24

d – proceeds - $100,000

e – cost basis - $90,000

f – code – “E”

g – amount of adjustment – negative $16,000

h – gain/loss – negative $6,000 (loss)

Additional Questions -

1.  An earlier reply post said I could leave form 8949 column f Code “blank”.  TurboTax put code E on column f automatically after I input the $16,000 as sales expenses.  There is no option for me to leave column f “blank”.  which is correct since there is no option to leave column f "blank" when I use TurboTax? 

2.  I was told that since I have a 1099-S, the amount on the 1099-S must match with the amount of proceeds shown on form 8949 column d.  Is it correct?

2.  As I asked in my earlier posts, the loss on sales of an inherited house is allowed as capital loss to offset other capital gains and also against incomes such as wages and interest/dividends?  If I have other capital gains of $10,000, the $6,000 loss on sales of the inherited house is fully allowed, so I would have only a net capital gain of $4,000 ($10,000 gains from stock sales minus $6,000 loss from sale of inherited house)?

[syoung123]

Hello, I am still a bit uncertain about inputting loss of sale of an inherited house.  Below shows the data and my TurboTax input attempt.  Please advise.  Thank you.

Data –

Inherited house, sales price on 1099-S is $100,000.  This is the only amount shown on 1099-S, and there are no other amounts such as closing costs on this form.

Appraised value at time of death - $90,000

Improvements after time of death - $3,000

Closing costs - $6,000

Repairs and maintenance such as well pump replacement, siding repairs, and lawn mowing from date the house was advertised for sale to date of sale - $7,000

Sale date – 5/10/2024

Below was the input that I used - one earlier post told me to choose “other”, another post told me to choose “land (other investment purpose)”.  Which option is correct to use?

“Wages and Income” Topic

“Investment Income” section – choose the Stocks, Crypto….. line

Next screen – click the add sales button

What type of investment did you sell - Choose “Other”

How did you receive this investment – choose “I inherited it”

Description – house address

Date sold – sales date on settlement statement 5/10/2024

Proceeds – sales amount on 1099-S, $100,000

Fair Market Value – appraised at time of death, $90,000

Next screen –

choose - I paid sales expenses not included in the sales proceeds on form (1099-S)

There is only one input box designated for sales expense.  How do I input the improvements of $3,000, closing costs of $6,000, and repairs and maintenance costs of $7,000. Total would be $16,000.  Do I put the whole $16,000 as sales expenses, and thereby as “adjustments”?  I did that as a test.  Form 8949 shows the following;

a – description - house address

b – date acquired – INHERITED

c – date sold – 5/10/24

d – proceeds - $100,000

e – cost basis - $90,000

f – code – “E”

g – amount of adjustment – negative $16,000

h – gain/loss – negative $6,000 (loss)

Additional Questions -

1. An earlier reply post said I could leave form 8949 column f Code “blank”.  TurboTax put code E on column f automatically after I input the $16,000 as sales expenses.  There is no option for me to leave column f “blank”.  which is correct since there is no option to leave column f "blank" when I use TurboTax? 
2. I was told that since I have a 1099-S, the amount on the 1099-S must match with the amount of proceeds shown on form 8949 column d.  Is it correct?
3. As I asked in my earlier posts, is the loss on sales of an inherited house allowed as capital loss to offset other capital gains (such as stock sales) and also against incomes (such as wages and interest/dividends)?  If I have other capital gains of $10,000, the $6,000 loss on sales of the inherited house is fully allowed, so I would have only a net capital gain of $4,000 ($10,000 gains from stock sales minus $6,000 loss from sale of inherited house)?

Thank you.

[DianeW777]

Yes, your entries are correct.  The overall loss based on the numbers provided is $6,000. 

1. You do not need to leave column f blank, you can leave the code E that TurboTax entered. (Form 8949 Instructions page 😎
2. Yes, it's a good idea to enter what is shown on Form 1099-S so that the IRS sees the proceeds are the same.
3. Yes, an loss on the sale of an inherited house is allowed to offset capital gains and other income on your return because it is considered an investment property and not personal use property such as using it as your main home or second home.

@syoung123 

[syoung123]

Hello, just curious, does it really matter if I combine the selling expenses into the cost basis and there would be "zero" adjustment on column g of form 8949?  Maybe that is the reason that the earlier posts said to leave column f “blank”?  Or which way is better?

Form 8949

a – description - house address

b – date acquired – INHERITED

c – date sold – 5/10/24

d – proceeds - $100,000

e – cost basis - $90,000 fair market value + $16,000 selling expenses = $106,000

f – code – “blank”

g – amount of adjustment – “blank” or “0”

h – gain/loss – negative $6,000 (loss)

[DavidD66]

It does not matter.  It does when reporting things like stock sales that have a cost basis reported on Form 1099-B.  It does not matter for the sale of an inherited house, as long as you get to the correct result.