FMV of Inherited Mobile Home sold at a loss

[mikemann101]

I am filing the return for the Estate of my late mother in law.  She passed away in July 2023 and in December we sold her mobile home at an auction.  It was in a very rural area so not a lot of opportunity to sell it through a realtor at full expected market value.  It was purchased in 2014 for $45k, and sold for ~$25k, less ~$2k fee to the broker.  TurboTax business says the basis for the person (my spouse) who inherits it is the FMV at the time of death, and that the IRS would treat any gain or loss as a Capital Gain or Loss.  We purchased an appraisal from J.D. Power, who is recommended for mobile home appraisals, which came to ~$38k.    

My Questions: Will the IRS consider the FMV to be the price it sold for in the auction, or will they allow the appraisal price of $38k?  That would give us a Capital Loss of ~$15k if I understand correctly.  Related to this, since the estate will not be closed by the court until 2024, should the estate record the sale in 2023 and the K-1 show the loss in 2023, or does it get reported in 2024?

[DianeW777 · Accepted solution]

Yes, you are correct.  The cost basis to the beneficiary is the fair market value (FMV) on the date of death.  I would see of you could find another value to be sure you are using the correct amount.  Sometimes appraisals are higher than FMV.

Once  you are satisfied with the correct value, file it on your return as an inherited investment sale. The IRS will use the information you have for how you arrived at the correct FMV, however we cannot guarantee their acceptance.

The estate doesn't really own the asset, your spouse owns it so I would report it on your return for 2023. An estate return will only be filed if there is at least $600 of earnings after death and before distribution of the assets.  There is also 'distributable net income requirements' so you should check with the person or company that is handling the estate.

FMV = What a willing buyer would pay a willing seller and neither having a reason to buy or sell.  This is the 'tax lingo' definition.

Follow the instructions in the link below and follow the 'Personal Items'.  Be sure to select 'inherited' because TurboTax knows that this is always long term holding period.  Keep in mind that a personal loss is limited to $3,000 per year against other income and you may have a capital loss carryover if you have no other profitable investment sales. 

• Sale of inherited property