2021 Sale of Inherited Home

[TaxSeaMacKodiakAK]

I would like to know where within Turbotax Premier (what steps to get there), I input the sale of an inherited home that was in an estate. The proceeds then were dispersed between 4 people within the estate.  Thanks for the help.

[ColeenD3]

Follow the steps below. Make sure you indicate that the house was inherited. There is a drop-down box.

[TaxSeaMacKodiakAK]

Here is my problem, I'm unable to find where this screen is within Turbotax Premier.  I've tried to find it but am unable to. So the steps would be...Wages & Income (or some other), next option to take would be, and so on until the options taken would bring me to this screen.

Appreciate the help.

[ColeenD3]

TurboTax Online

1. Click on Federal > Wages & Income
2. In the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other.  If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link. 
3. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 20XX?  Click the Yes box.
4. On the screen,  OK, what type of investments did you sell? mark the Other box and click Continue.
5. When you get to the screen, Now we’ll walk you through entering your sale details enter the details of the sale.  You will be able to select the type of investment in the first box (second home, land, etc.) 
6. Enter the requested information and click Continue when done.

TurboTax CD/Download

1. On the Wages & Income screen, in the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other.  If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link. 
2. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 20XX?  Click the Yes box.
3. On the screen,  Did you get a 1099-B or brokerage statement... click the No box.
4. On the screen, Tell us about this sale, mark the radio button, I'll enter one sale at a time.
5. Enter the information in the boxes that appear.  You will have to type in Second Home in box 1a.
6. Enter the total sales proceeds as well as the other information requested.  Continue to the screen, Select any less common adjustments that apply.  
7. Mark the first box The reported sales price did not deduct all fees or selling expenses. Enter the sales expenses not deducted from the sales price entered earlier

[TaxSeaMacKodiakAK]

First I have a Premier CD loaded. I went to options you laid out and I already had investments entered. I enter all the information in the Tell us about this sale, Sale #1 screen.  Holding period goes to short term due to the dates acquired and sold are within a year. But, when I click on continue I get screen Any of these less common items for this sale?  and your #7, Mark the first box The reported sales price did not deduct all fees or selling expenses, Does not appear on the screen. On the screen are places to enter amounts for things like Accrued market discount, Wash sales loss allowed, Proceeds from collectables with Fed & state tax withheld boxes and a box for state and state ID.  Also, this sale has the net proceeds divided by 4 siblings. Does that change how this should be entered since I assume they would all have to file for their share of the sale?

[DawnC · Accepted solution]

Okay, it is a little different in the version you are using.    On the screen with the 'accrued market discount', scroll down and click on Done.   Then indicate NO, this is not employee stock.  And the next screen is where you will see The reported sales price did not deduct all fees or selling expense.  

You can use the next item on that screen to indicate that only 1/4th of these proceeds belong to you.   You are correct, each of you will claim 1/4th of this transaction on your own tax returns.  

Transactions involving property inherited from a decedent who died before or after 2010 are always long-term transactions. In this case "inherited" may be entered in the "date acquired" column.   If you type in inherited in that box, TurboTax will automatically change the holding period to long-term.  

[DrPhrogg]

You don't enter estate info in your 1040. It goes into the Estate 1041. Make sure you use the Estate TIN and not a SSN in the 1041. As long as the total value of the estate is under $5 Million (check this) you don't have to report inheritance on your federal return. The numbers are different for each state. We reported bonds under the estate number as executor, but used SSN instead of TIN, and got an IRS bill for $10K. We refiled using correct number and showed that we did not receive the total distribution. 1041a shows distribution. As long as it is part of an inheritance, and does not exceed the max, you don't include it in your income. I am not a CPA, so you should check this, but it is what we did, and it was accepted.

[BKam]

Hi TaxSea,   I had the same situation this year as we sold my parents home last year.  I use Premier also and so

A. I went to Fed Taxes in step by step and

B. under wages and income go down to

C. Investment income go to first tab:  stocks, bonds, Mutual funds and

D. select update and add more sales. 

E. Then I entered the description of the property and added Inherited home,

F. then add info such as dates acquired and sold cost basis and sales proceeds,

G. and then the box i checked is long term (Box F) because we had inherited several yrs earlier. 

This copies to Forms Schedule D, Form 8949, Form 1099 B wks, and Capital asset sales.  Hope this was helpful.

[TaxSeaMacKodiakAK]

Seems from everything that I've read you have to report the sale on your 1040 schedule D. It could be a capital gain or a capital loss depending the worth of the home on the date of death and the actual net proceeds from the sale, whenever that happens. I just couldn't figure out where in Turbo to do that. Kept getting some form of how to do it but not WHERE, steps to get there, in Turbo to put that info in.

[TaxSeaMacKodiakAK]

I had to go further as there were 4 siblings involved with the proceeds. Which means you need to click on the screen after next to get to where you can get the gains or losses to be just what the person filing was responsible for.  Even with the Tax expert helping it took her a few times to put it together even though I asked for a step by step like you showed and that it was for multiple siblings. Not like Turbo is walking you through this process. 

[DrPhrogg]

If you report the total value of the sale, you will be responsible for taxes on that amount. It is not a capital gain, it is an inheritance. If you are the executor, make sure you are using estate forms and numbers. Keep your income, and 1040 separate fro%m your role as executor. If this is not clear, talk to a professional. We made a mistake on entering just one number reporting bonds in the estate, (and that was on the 1041) and we suddenly owned almost $10k. When we fixed the 1041, accounted for distribution & costs of the funeral, we owed nothing more. Don't guess on this. If you are not sure, it is worth it to talk to a tax advisor who deals with estate taxes. Up to $5 million is not subject to Federal tax. The exclusion on state tax varies. In NJ, it is $650K. But the forms for the executor are not the forms you use for personal tax returns. I am not a financial expert. I learned this from making mistakes on my father's estate.

[DrPhrogg]

I don't believe you get the inheritance exemption this way. In your Federal taxes, inheritance of an estate up to $5 million is exempt. States vary

[ColeenD3]

It appears that the estate closed and distributed the assets to the beneficiaries. Include your portion of the FMV (your basis) and sale price as instructed in the Investment section.

[DrPhrogg]

Perhaps, but did the executor inherit the entire home? If it was sold as part of the estate, and distribution was done before the estate closed, it should be reported on the estate return. If the executor took possession of the property and sold it after the estate was closed, then they may owe on capital gains, but that would have been a mistake. They would have to report the income, and the distribution would not be inheritance, but gifts. Which may screw up the recipients. It almost sounds like they didn't use an attorney for the estate.

[DianeW777]

An executor does not inherit any property from the decedent unless they are one of the beneficiaries.  If the estate sold the home then the capital gain or loss will be distributed to the beneficiaries on their individual Form 1041-K1s.  

Any asset in the estate is considered inherited property (not income).  Only income from the inherited property becomes income to the beneficiaries. There are no gifts involved. 

If the inherited home was transferred into the name of one or more of the beneficiaries after death, and it is inherited by all beneficiaries, then the sale itself is reported on the return of each beneficiary (without the use of the Form 1041-K1 for the sale).  Each beneficiary will report only their share of the sale.  Follow the instructions provided by our Tax Experts @ColeenD3 and @DawnC. 

As noted, all inherited property is considered held long term so it's important to use a purchase date of 'Various' or select 'Inherited' property depending on whether you are using TurboTax Online or TurboTax CD/Download.

If there are any other earnings from the estate before other assets were transferred, such as interest on a bank account, then the estate return will provide a Form 1041-K1 to each beneficiary.

@TaxSeaMacKodiakAK