How to File with Second Home Sale

Jacs2023irs

My wife inherited her father's house after he passed in 2012. It has not been rented although my wife's younger sister had been living there. Because the house was becoming a money pit due to maintenance issues and the lack of upkeep by the sister, my wife was able to sell the house earlier this year.

The question is, how do I enter this using the FreeTaxUSA software? I assume there is a capital gains since it was sold for more than the house was valued at when my wife inherited it. Does the normal FreeTaxUSA software lead me on how to enter this, or is there something else I need to do?

MatthewD

Hello Jacs,

There are several things going on here. I will go through each important item and explain where to enter this sale.

1. This is considered a second home or investment.
2. It is personal investment property (versus income-producing property), since a family member lived there and is subject to capital gains. (it is also possible to have a capital loss).
3. It is an inherited property and the basis (cost) to your wife is the FMV at the time it was inherited. The adjusted basis would be that FMV basis plus any improvements you made to it in since 2012.

To enter that sale:

1. Click on the Income menu and select, 'Stock or Investments Sold (1099-B)".
2. Click on "Add an Investment Sale" and then select Other (with the little house) and press Save and Continue. Then select, "One at a time" and press Save.
3. Enter the Investment Description and answer NO for the question, "Did you acquire this investment on a specific date?, and then select the Inherited option.
4. Enter the date the home was sold and the sales proceeds. Make sure you subtract from those sales proceeds any of the closing costs you paid to sale the home. (i.e., realtor fees, taxes, etc.)
5. Enter the Cost, which is the FMV at the time it was inherited, plus any costs of improvements.
6. For the basis reported to the IRS question, select the button that you did NOT receive a Form 1099-B. Press Save and Continue till you arrive back at the "Stocks or Investments Sold" page.

That will correctly report the sale of the inherited home.