Sale of a share of an inherited family property

[BullOak]

My wife's parent died  5+ years ago and the estate was settled. Last year we learned s they owned a share of a vacation home with their siblings, so we had to re-open the estate, transfer the share to my wife and her sibling, and then they sold their half shares to the remaining siblings. The whole thing was a bit of a mess, with conflicting advice from lawyers, family drama, etc.

The agreement was that the aunts and uncles would pay over three years. The total amount they're paying is approximately equal to the fractional share value of the property on the day the parent died. This is about 33%  less than the current market value of the house as far as I can figure, but was agreed to since my wife's parent never covered any of the significant taxes or maintenance on the property (long family drama story). The first payment was made at the end of 2023.

I'm trying to figure out how to account for this payment on our 2023 taxes (sale of a house?), and wondering if there's anything we need to do as far as the difference between values - I am assuming it's considered a gift despite the reasoning.

[PatriciaV]

What you describe is an installment sale of inherited property. The basis is the fair market value as of the date of death, while the sale price is the agreed-upon value the siblings are paying for the portion you sold. If those numbers are the same, you will have no gain or loss on the sale. If the payments don't include an interest component, you would have no interest income to report.

To test if this income is taxable, you may enter the information into TurboTax and let the program help you determine if it should be reported.

To enter an installment sale (Form 6252), use the Find/Search box in the TurboTax header and type in "installment sales."  Hit Enter, then click on "jump to installment sales." You will see a screen titled "Any other property sales."  Check the box titled "sales of real estate, cars or anything else for which you receive payments over two or more years."  Click Continue & the interview will guide you from there.

In general, inheritances are not reported on a tax return until or unless you sell them.