House sale of mother inlaw

[Gary2023]

My wifes mother passed in 2020 and my wife was listed on the deed to the house. It took us approximately 1 yr to bring the house into sellable condition. During that time we spent approximately $65000. to keep up with mortgage, insurance, roof, septic, interior and exterior paint to name a few. She was also her caregiver for several years. What is my options in order to figure my tax implications if any that we would be liable for IRS payment. We also did all work ourselves and we feel there should be some kind of way to not spend countless hours to prepare our taxes for this sale. My wife feels that this should have been considered her inheritance. Any help in this matter would be greatly appreciated as our next step would be to sit down with a tax expert.

[rferreira 1]

The basis on the inherited property is the Fair Market Value (FMV) on the date the deed was transferred.  The amount that your in-laws paid for the property does not come into the calculations because you are eligible for stepped up basis.  To that, you will add any capital improvements that you made to the property plus any expenses you incurred to get the property ready for sale (new pain, shrubbery, etc.).  You cannot deduct your labor for making these improvements though.  The difference will be your capital gain.