Inherited Home

[focus123]

I live in Pa. This is a question regarding Pa taxes. My mother died in Jan 2019. My sister and myself were the executor's. My mother had a home with my older brother as tenants in common, she owned 2/3rds. We filed the Pa inherited taxes of 4.5 percent estimating the 2/3rd of the house at 195,000. Fast forward to today 2024, we just sold the house and the net proceeds(2/3rds) are 259,000, the difference of 64,000 from the estimate made in 2019. My Lawyer said we do not have to refile the inherited taxes with the courts. However ,I got a 1099-S form. Using Turbo tax it takes me to a question about what the "fair market value when previous owner passed away". Question: what number goes into that box? Thank you.

[Mike9241]

you need to find out the Fair Market Value on the day she died in 2019. Whether the 195K is 2/3 of FMV as used for inheritance taxes in PA is unknown

it would seem your older brother owned 1/3 and did not inherit a portion

for you and your sister the tax basis for gain or loss is 1/3 of the FMV on date of death. if 195K was the true FMV of 2/3 of the property than each of you uses 1/2 as their basis 

from the gain your share of selling (certain closing costs) costs would be deducted

your older brother, it would be chis cost basis. 

[M-MTax]

it would seem your older brother owned 1/3 and did not inherit a portion

That MIGHT not be correct at all. The older brother did own 1/3 outright but also MIGHT have inherited a share of his mother's 2/3. Need to know if there was a will or trust or if she died intestate.

[focus123]

Yes, my older brother owned 1/3 and his only son inherited that and a portion of my mom's 2/3rds. There was a Will and we filed with the Register of Wills in Pa. We paid the 4.5 percent but had to estimate the house since my brother was still living there. We estimated the house using Redfin at 292,000- so 2/3rds of that -195000 is what we paid the state of Pa in inherited tax. I just need to know what I have to enter in the box "fair market value when previous owner passed away" in TurboTax.

[JotikaT2]

Typically, when someone passes away, you should obtain an appraisal as of the date of death to obtain the fair market value that needs to be used for purposes of calculating the cost basis.  It does not sound like this happened in this situation.  Since your mom and brother held the property as tenants in common, only your mom's share of the property would be distributed to her heirs.  Please see this link for more details on how this would be handled.

Since your mom owned 2/3rds of the property, that is the ratio that would be allocated to the stepped up basis.  In this case, you would multiply 2/3 times the fair market value on the date of death to determine the overall stepped up cost basis for the heirs.  The remaining tenant in common would retain their cost basis as the property was held as tenants in common, and as such, the remaining owner would not have a stepped up basis.

@focus123