Hello katgirl54,
Thank you for the question. Questions about inheritance and taxes can be complicated and involve state and federal tax issues. I can give you some general information but it may be wise to consult an attorney in this matter. However, I can describe a typical situation in regard to the federal side.
Generally, when an inherited asset is sold, the basis of the property is stepped up to it's FMV (fair market value). If the asset is sold shortly after death, there is usually no time for the asset to appreciate in value. There is also an alternate valuation date where the stepped-up basis can be determined 6 months after death. These values whether at death or 6 months later usually require an appraisal.
The point is, if the sales price is equal to the FMV (stepped-up basis) there is no gain. The beneficiaries may get a 1099-S from the closing. In this situation, the sale would be reported on the tax return with the sales price and the basis as the same amount and thus no taxable income. The reporting would simply be done for 1099 matching purposes.
The above scenario is provided for illustration purposes and may not be applicable to your situation. Generally, beneficiaries do not pay tax on items received through inheritance. If the deceased had a taxable estate, taxes are paid by the estate when the Form 706 is filed.
