unexpected inheritance from father / rental properties sold

[Piper22]

my father passed in 2020 without a will - state law determined my share of estate - the only tangible assets were rental properties that were subsequently sold in 2021 by executor of estate.  the deeds to these properties were never actually transferred to me & when they were sold in 2021, the % due to me was sent by check and recorded on HUD-1s.  I also had to sign closing docs as one of the sellers on each property.

I received checks from each closing, but it was generated from sale of investment properties that I have never had any interest or ownership.  I never made any mortgage or tax payments, never collected rent, did not handle the sales, realtors, negotiations, etc. - just had to review and sign with other owner.  all mortgage debt was paid in full leaving small profit on each property, legal fees were also deducted in sales of properties, all info recorded on each HUD1 at closing.

does this mean I now have to add the total amounts for each check to my gross income for 2021 when reporting/filing as if I owned and sold properties myself?  any ideas on what IRS forms may be required and/or if TurboTax will just figure this out for me once we have all the paperwork together and enter the details? 

[Mike9241]

If the deeds to the properties at the time of the sale were in the name of the estate, the estate reports the sale. without a will, state law dictates whether the income/gain must be or can be distributed to the beneficiaries. so you need to contact the executor to find out what's going to be done.  the proceeds can be a non-taxable distribution of corpus or a taxable distribution of income. even if taxable, not all the proceeds would be taxable only the income portion. if the estate's income will be distributed you will get a K-1 to show what you need to report. 

[Piper22]

thank you @Mike9241 - we know of tax owed to one of the states for sure and will inquire with the executor re: K1's - much appreciated reply! 

[Anonymous_]

I am sorry for your loss. I agree with @Mike9241. 

Note that you are either going to receive a K-1 or a 1099-S, depending upon whether the estate sold the property or, by the laws of intestate succession (or type of deed), the property vested in you upon the death of your father.

[Critter-3]

This may be a year where you seek local professional assistance so this is done correctly ... talking to the estate executor is key. Until you know what is going on you cannot know what steps to take.

[Piper22]

thanks - i know one state does require an inheritance tax to be paid there for sure.

[DianeW777]

One piece of information for you is that your "cost" in these assets that were inherited, is the value on the date of death assuming your name was not on any property before death. Meaning there was no ownership on your part before the death of your father.  The significance for you is that in your situation because the properties were sold closely following your father's death it's likely your cost and inherited value may be almost equal.  Whether reported on the estate or your personal return, there should be very little gain to report on the sale of the properties.

Please accept my sympathies for your loss.