Sale of mother-in-law's house - how to report net proceeds

[bratrudy]

Mother-in-law was suffering from dementia and was in a locked Alzheimer's unit.  Her house, fully paid for, was put into the name of her 3 sons prior to her death as joint owners as she was incapable of handling any personal care or business transactions.  Since her death in 2019, the property has been sold and net proceeds split 3 ways between the three sons.  The proceeds will have a 1099 from the real estate company for each son.  How should the money from the sale be reported -- normal income (fully taxable), or are the funds still considered a part of the mother-in-law's estate?

[Anonymous_]

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@bratrudy wrote:

The proceeds will have a 1099 from the real estate company for each son.  How should the money from the sale be reported -- normal income (fully taxable), or are the funds still considered a part of the mother-in-law's estate?

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Each of the sons will report one-third of the proceeds from the sale. Neither the house nor the proceeds would be considered part of the mother-in-law's estate since she transferred title to the sons prior to her death. The sons would be well-advised to consult with a local trusts/estates attorney with respect to this matter, regardless.

Each of the sons will use one-third of the mother-in-law's adjusted basis for the purposes of figuring any gain on the sale but will use the fair market value of the property at the time of the gift for the purposes of figuring a loss on the sale. Note that a loss from the sale of personal use property is not deductible.

See https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...