Beneficiary carry over of home sale loss

[Keneng]

Question, parents passed awat and home sold for a loss. There are 6 beneficiaries and each received 1/6 of the proceeds, but also received $72K as a loss to each beneficiary. This is the difference of the what the house was appraised and what it was sold at. Does TurboTax automatically carry forward the loss year over year as long as I use TurboTax? Part 2 of my question, where in TurboTax can I find out how much of the original $72K has been used year over year? I was told I needed to keep track of the losses till the $72K has been used up.

[rjs]

You cannot claim a loss on property that was held for personal use. Unless you used the house for business or rented it out, you cannot deduct the loss and there is nothing to carry over.

[Keneng]

Sorry I was probably not clear. Parents past away Feb 2022 and the house was sold in September 2022, no one lived at the property as during that time house was being readied to be sold. House was appraised but sold for loss. The difference is what the CPA said is considered a loss and beneficiaries can carry it on their taxes. 

[Bsch4477]

I stumbled on to this issue but can’t find any tax law to substantiate it. Do you have sources to vet it?

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

@rjs 

[dmertz]

It seems unlikely to me that an estate can hold the property for personal use since an estate is not a person, so I don't see why this capital loss passed through on the Schedule K-1 couldn't be taken on the individual's tax return.  TurboTax does carry forward capital losses until they are fully consumed.

[Anonymous_]

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@Bsch4477 wrote:

I stumbled on to this issue but can’t find any tax law to substantiate it. Do you have sources to vet it?

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https://www.irs.gov/publications/p559#en_US_2022_publink100099689

Sale of decedent's residence.

If the estate is the legal owner of a decedent's residence and the personal representative sells it in the course of administration, the tax treatment of gain or loss depends on how the estate holds or uses the former residence. For example, if, as the personal representative, you intend to realize the value of the house through sale, the residence is a capital asset held for investment and gain or loss is capital gain or loss (which may be deductible). This is the case even though it was the decedent's personal residence and even if you didn't rent it out. If, however, the house isn't held for business or investment use (for example, if you intend to permit a beneficiary to live in the residence rent free and then distribute it to the beneficiary to live in), and you later decide to sell the residence without first converting it to business or investment use, any gain is capital gain, but a loss isn't deductible.

[Keneng]

Found this article that seems to hep too

http://archives.cpajournal.com/old/07299818.htm#:~:text=In%20the%20final%20year%20of%20an%20estate%2....

[rjs]

@Keneng

All of the sources that have been quoted refer to an estate selling the home. Did the estate sell your parents' home, or was ownership transferred to the beneficiaries, and the beneficiaries later sold the home? Who was the seller (or sellers) at the closing?

"Does TurboTax automatically carry forward the loss year over year as long as I use TurboTax?"

Yes, TurboTax will carry over the loss from year to year as long as you use TurboTax every year and transfer your information from the previous year when you start your new tax return.

Part 2 of my question, where in TurboTax can I find out how much of the original $72K has been used year over year?

In TurboTax there is a Capital Loss Carryover Worksheet that shows the amount carried over from the previous year, and a Capital Loss Carryforward Worksheet that shows the amount being carried over to the following year. The worksheets show the remaining amount that is being carried over. They do not actually show how much of the original loss has been used.

If you have other capital losses in future years, all the unused capital losses are added together. The carryover is calculated on the total of all remaining losses. It is not calculated separately for each loss.

[Keneng]

Thanks for adding additional information, very helpful. The home was under the trust and sold under the trust. Once the estate paid any outstanding taxes, closed out the trust, submitted final tax forms, the trustee distributed the proceeds and the losses evenly to the beneficiaries. 

[DMarkM1]

Yes, as rjs stated "Yes, TurboTax will carry over the loss from year to year as long as you use TurboTax every year and transfer your information from the previous year when you start your new tax return.

In TurboTax there is a Capital Loss Carryover Worksheet that shows the amount carried over from the previous year, and a Capital Loss Carryforward Worksheet that shows the amount being carried over to the following year. The worksheets show the remaining amount that is being carried over. They do not actually show how much of the original loss has been used."

Also, as the other posters alluded to and provided the IRS discussion link to, the determining factor on whether the loss is deductible by the beneficiaries is how the residence was used.  In this case it appears the residence was part of the estate (grantor revocable trust)  which held the residence for a business use.  It was sold for the value to pay any estate bills.  Therefore the loss would be passed to beneficiaries and be deductible. 

[Anonymous_]

Factors:

• The property was sold in an arm’s length transaction.
• The property was sold to an unrelated person.
• Beneficiaries did not use the property for personal purposes.
• There was no intention to convert the property to personal use prior to the sale.