Inheriting a House as Part of a Trust

[ChicagoJ]

My father passed away at the end of 2022.  All assets, including an IRA and his house, were part of a simple revocable trust. My brother and I inherited the trust equally.  We moved the IRA into another account under the Trust name and then we split the assets and moved them into our own brokerage accounts. 

We sold the house in August, 2023.  Because the house was still part of the (now irrevocable) trust, my brother and I opened a bank account in the name of my father's trust to accept the funds from the sale of the house.  My brother and I (both named in the trust and on the bank account) then moved our equal shares of the funds from the house into our personal bank accounts. 

How (and where) do I enter this house sale in TurboTax?  I'm not concerned about the cost basis -- I have that covered.  But do I treat this the same as I would the sale of a second/investment home?  Should this sale be part of the tax return we have to submit for the Trust and do I (and my brother) not report it at all in my personal return? TurboTax was great about asking questions about the inherited IRA (even offering condolences), but I can't seem to find the magic when dealing with the inherited house.  Any direction and advice is appreciated.  Thanks as always!

[DianeW777]

Yes, you will treat the sale of your inherited house just like a second home sale with the exception of selecting 'I inherited it' as how it was purchased. It should be reported on each of your individual returns because it was distributed to each of you. Each of you would report half of the cost basis and half of the selling price/selling expenses.

This is considered investment property, report the sale using the steps below:

1. Under Wages & Income scroll to Investments & Savings
2. Select Start/Revisit beside Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Select Add Investments or continue to go through the screens to select 'Other' > Continue
4. Begin to enter the sale description >  Under Type select Other > Under How did you receive select 'I Inherited it' (if applicable)
5. For TurboTax Desktop you would enter the description 'Inherited Property' and select 'Long Term' as the hold period
6. Enter your sale date and 'Various' as the Acquired date
7. Continue to complete the screens until you arrive back at the Wages & Income main page.

Inherited property is always considered to have a long term holding period which provides favored tax treatment.

[ChicagoJ]

Thank you so much, DianeW777!  Since my brother and I inherited it together and split the proceeds evenly, does that change anything I enter into TurboTax?  Or would I enter everything as though I inherited the property alone?  Thanks again!

[PaulaM]

Report half of the sale proceeds and cost basis on your return, and your brother reports the other half on his return. 

[ChicagoJ]

Diane, thank you once again for walking through how to report the sale of an inherited house.  One follow-up question:

Does it matter that the house was part of my father's revocable trust when it was sold?  I was told by someone else (outside of TurboTax community) that the sale of the house will be covered by the tax return we do for the Estate, and I will include a K-1 in my TurboTax personal return, but I should NOT report the house sale via inheritance in my personal return.  I've looked through the internet and cannot land on anything definitive.  Any ideas?  Thanks so much!

[DaveF1006]

Yes, if the house is in the name of the trust, it would need to be reported in a 1041 estate/trust return and then the capital gains are equally shared on the K-1's that are generated by the trust. You would not report the sale in your own return. 

You report a 1041, you would need to purchase Turbo Tax Business. You may purchase that here.

@ChicagoJ 

[ChicagoJ]

Thank you, @DaveF1006 .  I want to make sure I am not missing something...  We have a CPA doing the tax return for the Estate/Trust, so I am almost positive that the 1041 form is going to be reported with that return.  On this return, my brother and I (the beneficiaries) owe no tax from the Trust/Estate (if that matters).

My questions is whether or not I need to do anything with my personal tax return.  The CPA sent me a K-1 and a K-1-T form, with a "canned" note:  "The information provided in this (K-1) schedule should be entered on your personal tax return in accordance with the instructions page."  I have no idea what that means, and my CPA has been less than communicative (it's a couple days before Tax Day -- I get it!!).  Does anyone have any clue what I do with the K-1 as far as my personal return is concerned??  The 1041 has been submitted on the Trust tax return, so we are all set on that front.  Sorry for being so dense on this issue!!

[DaveF1006]

The k-1 information needs to be reported in your return and the information in the boxes must be reported.  Here is where to begin once you are working in your Turbo Tax return.

1. Go to Federal
2. Wages and Income
3. S-corps, Partnerships, and Trusts
4. Schedule K-1
5. Tell Us About Your Schedules K-1
6. Select Estates or trusts (Form 1041)

This is where to begin recording your K-1. All the information to complete this section should be on he K-1 form but reach back to us if you have additional questions. 

@ChicagoJ