Inherited real estate sales

[Need to know]

When the tax returns are submitted for the year and it shows that there was a sale if inherited real estate, does the IRS look at public records to confirm the date that the home was inherited by the children?

What is the best way to not raise a red flag in the sale of inherited real estate?

[RobertB4444]

You're going to enter all of the information about the inherited real estate.  If the IRS reviews your return they might ask you to show how you came to the valuation you entered for the property.  But in most cases they are aware that someone has died and they can see that the property was sold so they look to your numbers for confirmation of what is due.

Just maintain records of the valuation in case any questions come up and you should be fine.

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[Need to know]

What may the IRS look into if the inherited home sat vacant for over a year and then was used as a rental for 9 months before it was sold?

[JohnB5677]

The first thing is that you evaluated the Value at the time of your mother's death. (just as RobertB4444 said)  That establishes the basis of the property.

Then for the nine months you rented it, it should have been reported on your taxes.  This would be a Schedule E.

• You would have to depreciate the budling (Not any land) for the 9 months.
• This will reduce the basis by that amount.

If this was not your primary home it will be taxed as the sale of a rental.

This will be taxed at Capital Gains rates.

Please se the TurboTax guidance I sold my rental property. How do I report that?

[Need to know]

Thank you for your reply.

This then raises the question, if I am then filing taxes to show the sale of this property as a rental, do I then not enter it as inherited property? I guess this gets somewhat confusing.

Would this kind of information on a tax return raise a red flag?

[MarilynG1]

No, you would be entering the inherited home as a Sale of Rental Property only, using the Cost Basis/Depreciation Taken/Sales Expenses to arrive at a Cost Basis against the sale proceeds.  it's doesn't matter that the Rental Property was inherited before it became a rental.

In the Property Profile in the Rental Section, TurboTax asks for days rented in 2024, and Personal Use days (enter 0).  In the Sale of Property/Depreciation section, set up the home as an Asset (Real Estate).  For Amount You Paid for It, enter the appraised DOD value to arrive at a Depreciation Deduction for 2024. 

Here's more info on How Capital Gains are Taxed and Selling Rental Property at a Loss

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