Sale of inherited home

[mmmcconaghy]

My brother and I inherited our father's house upon his death. We sold the house for $100,000 and the appraisal came in at $130,000. The proceeds were divided equally between the two of us. How do I report the sale for tax purposes? I received a 1099-S at the closing on the house.

[Anonymous_ · Accepted solution]

If you did not use the house for personal purposes, then you likely can deduct the loss (a long-term capital loss) assuming, of course, that the appraisal was a date of death appraisal.

You would report the sale in TurboTax in the same manner as you would the sale of a stock, bond, or mutual fund (the Investment Income section of the program).

What were the exact circumstances surrounding the inheritance?

[DavidD66]

Each of you (you and your brother) will report 50% of the sale.  To report sale in TurboTax:

• Type "Investment sales" in the search window and click Enter
• Click on "Jump to Investment sales"
• On the page with "Did you have investment income in 2022?"  Answer Yes
• On the page with "Did you have crypto income in 2022?" Answer No (you can revisit this section later if the answer is Yes).  Then click on Continue
• On the page with "Let's import your tax info" click on "Enter a different way"
• Select "Other" to "OK, let's start with one investment type?" and click Continue
• Enter a name for the the person or firm that brokered this sale
• On the page with "Now, enter one sale for _______",  for "What type of investment you sold" Indicate "Investment Property"
• Indicate "Inheritance" for "How did you receive this investment?

You can claim a loss on the sale of your father's house that you and your brother inherited, if each of the following are true:

• The house was sold in an arm’s length transaction.
• The house was sold to an unrelated person.
• You and your brother did not use the property for personal purposes.
• You and your brother did not intend to convert the property to personal use before the sale.

[dugott]

Thanks for this answer. I'm in the same situation. I entered the amount on the 1099s and then used the appraisal for the basis.  It says that there is no exclusion and personal losses are not deductible.  Am I doing this correctly?

[Anonymous_]

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@dugott wrote:

Thanks for this answer. I'm in the same situation. I entered the amount on the 1099s and then used the appraisal for the basis.  It says that there is no exclusion and personal losses are not deductible.  Am I doing this correctly?

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Was the appraisal a date-of-death appraisal? Was the property used for personal purposes?

If there was a loss, it would be deductible (as a long-term capital loss) provided the property that was acquired from a decedent was being held for investment.

[ErnieS0]

You can’t claim a home sale exclusion on an inherited house because it was not your principal residence (I’m assuming you did not move into the house).

You can only exclude the gain if you owned and used your home as your main home for at least two years out of the five years prior to its date of sale.

See Topic No. 701 Sale of Your Home.

The sale of personal property, including a home not held for business or investment purposes, is not deductible. If you believe the inherited home was an investment property, as Tax Champ tagteam stated, you can claim a loss.

You don’t say what TurboTax product you are using. You probably entered the sale as a “second home.” If you believe it’s an investment, use Other as your category.

[marktm200]

Yes, I used "second home" first and no capital loss was allowed - using 2023 H&B).  I then changed to "other" and TT calculated the capital loss correctly.  I described the home as an inheritance and it does meet the stated requirements.

Can I ask the title company for the 1099 S if it does not show up by end of February?

[AnnetteB6]

You can certainly ask the title company if a Form 1099-S will be issued so that you don't continue to wait.  

However, a Form 1099-S is not required in order to report the sale of an inherited home.  As long as you know the cost basis, proceeds, and expenses of the sale, you should have everything needed to report it on your return.  

@marktm200