sale of inherited home

[ringmandqr]

3 sisters inherited the family home. The 1 sister was paid out and she didn't take the inheritance tax write off when she claimed her income years ago. This year the 2 sisters sold. Do they get to report on their taxes half each of the inherited amounts of the house (amount based on the value of the home the year of inheritance)? 

Thanks

[AlanT222]

The total basis for each remaining sister when they sell the house would be 1/3 of the FMV at death plus 1/2 of what they paid to the third sister for her share.  

The basis of property inherited from a decedent is generally one of the following:

• The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
• The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the Instructions for Form 706.

When the 3 sisters inherited the property, each would be entitled to 1/3 of the basis (FMV of the house at death).  They must also account for the amount they paid for the third sister for her share in the house.  Each would be able to add half of what they paid to the sister to their basis in the house. (This is assuming that the 2 remaining sisters contributed equally to buying out the third sister)

[barbaradundore186]

sold equally by the 3 siblings to an outside party. how do I do my taxes on this when filing?

[SusanY1]

You will report your portion of the sale of the property in the investment income section of TurboTax.  Treat the transaction as if its entire value is your 1/3 portion.  (You report 1/3 of the proceeds, 1/3 of the market value as the basis, etc.). 

For inherited property, the holding period will always be "long term," and your cost basis will be the value of the property on the date of death of the original owner (unless the estate elected an alternate valuation date, but this is not common). 

Here are the steps to enter the transaction into TurboTax:

1. Click on Wages & Income.
2. Click on Show more beside Investment Income
3. Click on Start (or revisit) beside Stocks, Mutual Funds, Bonds, Other.
4. Click on Add Sales.
5. Answer No for "Did or will you receive a 1099-B...?"
6. Follow the prompts to enter the sale.  For the type of investment, select "second home" to get the most appropriate questions and categories for your sale.  

@barbaradundore186

[barbaradundore186]

Where do I search for the value of the property : Death date: 9/13/2007?

[DianeC958]

You would need to hire a qualified appraiser.  If they have been in business for a number of years they would be able to give you the fair market value as of the date of the death.  They will ask you questions about the condition of the property in 2007 and will need to walk through the property.

Their fee can be added to selling expenses when you report the sale of the home.

@barbaradundore186

[Terry bach]

3 siblings have inherited their fathers estate.  Siblings no longer communicate.  Property was sold at a loss.  We have received a 1099s for our 1/3 of the sale. Trying to determine FMV fair market value.  Is it kosher to use the purchase price from about 5 years prior if available?  Or what else.  first listing price?  how does one set the FMV?

Thank you for your input.

[JeffreyR77]

Fair market value at date of death of the father should be determined if not by an actual appraisal at that time then by comparable properties at that time. 

A Realtor should be able to provide you a reasonable FMV for your property at the time of the father's passing. 

You are not able to deduct a loss on the sale of the inherited property.

[BR1900]

Why

[Mike9241]

why - because at death the tax basis of property is adjusted to its fair market value.   so if taxpayers cost was $200 and FMV at DOD was $300 and you sell it for $350. would you rather pay tax on $150 or $50?

[BR1900]

If a loss, why could you not take the loss.  

[Critter-3]

You can take a loss ... usually it is the selling costs that put the sale into the negative. 

If you sell the home within a few months of the death then the selling price is considered the FMV as of the date of death.  Then when you add in the cost of sale you can and often do have a deductible loss. 

[Anonymous_]

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@BR1900 wrote:

If a loss, why could you not take the loss.  

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I agree with @Critter-3; you can take a loss on property you inherit.

However, you cannot recognize a loss for tax purposes on property you inherit if you are holding that property for personal use.

[Carl]

The total basis for each remaining sister when they sell the house would be 1/3 of the FMV at death plus 1/2 of what they paid to the third sister for her share.

@AlanT222 I think your train of thought may have been a bit skewed here.  Happens to me at times too. The cost basis would be 1/3 of the FMV at death plus THE TOTAL AMOUNT EACH PAID to the third sister for her share. Not one half of what each paid to the 3rd sister.

[Sunrain001]

What if the property was gifted  ( not inherited) by someone still living? Split 3 ways for 3 siblings. Gifted and sold within 8 months. How do I evaluate fmv?