Sold inhereted home

[Rshc]

My brother and I inherited a home once our father passed away.  There was no will or anything left.  Our mother passed away in 2017 and our father passed away in 2018.  Once our father passed away, the house was inherited by both of us.  We never lived in the home and it was never used for rental purposes.  The home was vacant.  We sold the house in 2022 for $430K.  That amount was split between us both.  I got form 1099-S with gross proceeds of $215K.  Our parents bought the home back in 1992 for $36,000.  The FMV back in 2018 was around $175K.  Our parents did some improvements through out the years totaling around $20K.  What amount would I report on my tax returns as investment income?  Can I deduct the $20K of home improvements my parents did?  Would this home be considered long-term even though there was no will left or anything stating this?  Here is what I have put down on my tax returns so far:

What type of investment did you sell?  SECOND HOME

How did you receive this investment?   INHERITED

Description? Inherited home

Proceeds? $215K

Fair Market Value when previous owner passed away?  $175K

[Anonymous_ · Accepted solution]

Your holding period for the home would be long-term per Section 1223(9) (the holding period for all property acquired from a decedent is automatically long-term regardless of how long the property was actually held).

Your share of the basis would be the fair market value on the date of your father's passing, but you would not be able to add the cost of any improvements your parents' made.

However, you would be able to subtract selling expenses (such as real estate commissions) from the gross sales price.

[MayaD]

Yes, You would add the costs of the improvements to your basis (FMV) to get your adjusted basis.

An improvement is something that adds value or extends the useful life Property. Where as repairs restore something that broke to its original condition.

Your holding period is automatically considered to be Long term.

You can deduct the selling expenses from the gross proceed.

 Sales expenses include:

• commissions
• appraisal fees
• broker's fees
• legal fees
• advertising fees
• home inspection reports
• title insurance
• transfer taxes or fees
• geological surveys
• loan charges (points) or other fees paid on the buyer's behalf
• any fees for a service that helped you sell your home without a broker (listing fees, promotional fliers, etc.)

Where do I enter the sale of a second home, an inherited home, or land on my 2022 taxes?

[Anonymous_]

Just for purposes of clarification, @Rshc, you can add the cost of any improvements you (or your brother) made after your father's passing, but not the cost of improvements your parents made before they passed.

The latter costs are incorporated in the stepped-up basis (the fair market value as of the date of death).