Inherited home sale - description question

[DXY2021]

Hello - quick question on the TurboTax menus for selling an inherited home 

the software instructions say enter "Second home" as the description for the sale of inherited home.  Do most people do this or is it better to enter "inherited home" in the description line ?  does it matter or should I just follow the turbotax help menu and enter "second home "- just wanted to check the guidance on this

thanks for any help !

[MaryK4 · Accepted solution]

It does not matter as long as you could identify the property if the IRS asked.  I think Inherited Home would be more descriptive so it is fine to use it..

[Opus 17]

I'm not sure I agree.  There is a difference in the tax laws as to how gains and losses are treated if the property is 

• your main residence
• a second (personal) home
• investment property.

Even if you inherited the home, if you lived there as your main residence, you should indicate you are selling your main residence.  If you are selling right after the person's death and you never lived there as a main or second home, you want to treat it as "some other investment property" because you may have a deductible loss on the sale.  "My second home" would only be appropriate if it was personal property (you lived there, but not as your main home.  Maybe its your parents' summer cottage or beach house, and you used it a few months or years before selling.)

[DXY2021]

thanks for the info - a little more detail - this is for an inherited home, sold right after the persons death - no one lived there between the death and sale.  We are viewing cost basis and market value the same where the selling expenses are equal to a deductible loss

we've entered in TurboTax (windows version) as wages and income / (investment income) stocks mutual funds other / add more sales / did you get a 1099B? no / then enter the info, etc.

i see your point on the description - i think it would be incorrect in our case to use "second home" like the online instruction say to use - just debating what to use in our case.

[Mike9241]

second home or inherited home is fine as long as you did not convert it into your primary residence.   a primary residence sale might be partially or wholly non-taxable if sold at a gain due to home sale exclusion. for a second or inherited house loss is not deductible and any gain is not eligible for the home sale exclusion.

[Opus 17]

@DXY2021 

@Mike9241 

here again, I think I must disagree as to the treatment of an inherited home. I think @Hal_Al  or one of the other champs has a similar opinion.

basically, if you never use the home for any personal use, then it is an inherited asset, just like stocks, and you are allowed to treat it as an investment property when you sell it.  Although your cost basis and selling price are the same, you are allowed to deduct selling expenses, including the real estate commission, and certain legal costs and transfer taxes you might have to pay.  That means that even if the selling price and the inherited cost basis are the same, you would be allowed a capital loss equal to the real estate commission and other selling expenses. That could reduce your other capital gains or be taken as a deductible loss on schedule D.  Selling expenses that are allowable basis adjustments are listed in publication 523, beginning on page 8. 

That may not be a universal opinion, but I have seen it many times on this board from other expert users.

[Hal_Al]

I agree with @Opus 17 , this should be treated as investment property, since there was not personal use.  Whether 2nd home or investment property, any capital gain is taxable at long term gain rates.  However, if there is a capital loss, the loss on investment property is deductible but the loss on a 2nd home (personal use) isn't.  An inherited parental home, sold shortly after being inherited is frequently sold at a loss, considering the expenses of sale. 

[Hal_Al]

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

-Investment Income

   -Stocks, mutual funds, Bonds, Other (Real estate is other)

Answer no, when asked if you got a 1099-B. then follow the interview.

[DXY2021]

Thanks all for the great discussion and feedback - yes there was no personal use to this inherited asset 

i also found this link online talking about deductible losses about the topic - i am sure there may be more on the TT forum but ran across this as well

https://www.hrblock.com/tax-center/income/investments/capital-gains-or-loss-on-inherited-property/#:...

[DZimm4372]

Greetings good sir,

Couple quick questions regarding sale of inherited home with my siblings and received a 1099-S.

1) Enter as investment and answer "NO" to receiving 1099-B? 

2) Can I enter address as the description?

3) Do I enter cost basis and proceeds as 1/5 of sale price, as my 4 siblings and I split expenses ( paint, carpet, cleaning) and proceeds evenly?

Thank you for your guidance.

[Hal_Al]

Couple quick questions regarding sale of inherited home with my siblings and received a 1099-S.

Q1) Enter as investment and answer "NO" to receiving 1099-B? 

A1). Yes

Q2) Can I enter address as the description?

A 2).  Yes. 

Q3) Do I enter cost basis and proceeds as 1/5 of sale price, as my 4 siblings and I split expenses ?

A3). Yes

[garth0207]

I have the exact situation.  My dad died, my brother and I sold the inherited home within a month.  We never lived in it, it remained vacant until the sale.  However, on TTonline when I get to the part where I enter the 1099 S information, the only real estate choices are 2nd home, land (personal use) and land (investment use).  If I choose second home, it does not allow me to show a loss for sales expenses.  Do I choose Land (investment use) or second home.  It sounds like I should not use 2nd home based on this online feed that I am responding to. 

Also it places it on schedule D as long term even though I only owned the property for 1 month.  Is long term correct? It did not ask me "date acquired", it only asked "date sold".  

[Hal_Al]

You use "investment use". Although it was your parent's personal use property, you and you brother never used it for personal use, so it is classified, for tax purposes, as investment property.  That allows you to deduct the capital loss.

Inherited property is always classified as long term, by law, regardless of how long the heir owned it. For date acquired, you enter the word, inherited.

[Hal_Al]

Inherited property is always classified as long term, by law, regardless of how long the heir owned it. For date acquired, you enter the word, inherited.

[RobertB4444]

Add the sales expenses to the basis for the house.  And long term is correct for an inherited home.

@garth0207