House Inherited and sold, how to input correctly into Turbo Tax

[Robtax70]

My wife’s father passed and left a house to his 3 adult children.  The house was sold 9 months after his death.  After paying off the loan, taxes, selling costs, lawyers, etc there was money left over.  That money was split 3 ways equally between the children (distribution).

Can some tell me how to input this into Turbo Tax (step by step)?  I have been following the instruction I see but I think it is incorrect.  In the section where is states: “Fair market value when previous owner passed away”.  Is the fair market 0 (because this seems to work).  If I put any number of value for the cost basis like 300,000.00 it only tells me I cannot take a loss.  I’m sure I owe money from the distribution of the funds (which I typed into the “proceeds box” but Turbo Tax is not work properly. Anyone?

[tagteam]

The basis would be the fair market value on the date of death of your wife's father. 

You can, indeed, recognize a loss provided the property was held for investment purposes (which sound likely) and there was no personal use after in the interim period between death and the sale.

[Robtax70]

Ok

The house was held during Probate only.  Once probate ended the house was sold.  When I put, for example  60k in proceeds and then put fair market value of 350,000.00.  Turbo Tax does not compute it as a gain, everything is just 0.  Is that correct? 

[tagteam]

You need to enter your share only (an exception would be if you were preparing a 1041 for the estate - if the estate sold the house).

[Robtax70]

Is there a document somewhere that explains this in detail? I'm having a hard time believing I don't own tax on a distribution of money from a home sell.

[NCperson]

@Robtax70

It is unlikely you have a gain to report and more likely there is a loss.  The capital gain is the selling price less the sales expenses less the market value on the date of death less any improvements made to the property between the date of death and the date of sale.  Frequently, that is a loss.

let's say your share of the sale is $125,000.  That is tax free to you.  Estates with less than $12 million do not pay estate tax.  You receive the money as the beneficiary from the estate tax free. 

Who was the seller of the home (look at the closing statement).  You or the estate? who is listed on the form 1099S?  it makes a difference whether the Estate is responsible for reporting the sale on its tax return (and you would receive a K-1) or the 3 of you are repsonsible for reporting your respective fair share. 

[rjs]

"Proceeds" is not the net amount of money that was distributed to you. It's the amount you sold the house for. You can subtract selling expenses and real estate tax paid at closing. TurboTax asks about those things. But you cannot subtract paying off the mortgage loan. You don't take the mortgage payoff into consideration in calculating the proceeds of the sale.

You pay tax on the gain, not on the "distribution of money." The gain is the amount you sold the house for minus the basis. As tagteam said, the basis is the fair market value on the date of your wife's father's death. And again, you cannot subtract the mortgage payoff from the selling price. You do not take the mortgage payoff into consideration at all.

[Hal_Al]

@Robtax70  said  "I’m sure I owe money from the distribution of the funds".

No, you don't.  There is almost never a capital gain on the sale of inherited property, that is sold shortly after being inherited, because of the "stepped up" cost basis.  The gain or loss is the sale price (less expenses of sale) minus the fair market value (FMV) ("cost basis") on the date of death. 

An inherited home is considered investment property (and any loss is deductible) unless the home was used by family during the probate period.  Do not classify the home as a "2nd home" when you enter it in TurboTax (TT). That's why you're getting 0 as a result. 

Enter only your share of the sale price (not the proceeds) and FMV cost basis. If the 1099-S, for the whole amount,  was issued in your name, you'll have to use a work around in TT.