sale of inheritance property

johnlee02

I was one of five children to inherit this property back in 1968. My sibling didn't want the property so I paid the tax and built a cabin on it. In 2010 the siblings sign the property over to me. I need to know how I figure the basic price for this property. Im selling the property on a contract for deed. So will the basic price be from 1968 or 2010 when the property was put completely in my name. Will I also be able to deduct all of the money I spend building a cabin and garage to lower the basic price?

KristineS

Hi johnlee02,

Thanks for writing in with your question and joining our Community.

In general, when you and your siblings inherited the land in 1968 it had a value. That value may or may not have been higher than it's purchase price, but generally land increases in value. It's called a "step-up in basis." In theory, the land would have received a new higher, valuation at the time of inheritance, and you and your siblings would start with that value as your step-up in basis for inheritance.

But it doesn't sound like anyone took formal ownership action other than you, by paying tax and building the cabin, which increased it's value again, now called the adjusted basis.

Then in 2010, when the property was signed or deeded over to you by your siblings, you took full legal ownership it sounds like. And the land with cabin had simply continued to increase in value in the interim years.

Fast forward, if you sell the property in 2025, you have an adjusted basis which equals the value of the land when you (and your siblings inherited it) plus the cost to build the cabin, plus any major improvements over the years since then (such as a new roof, the addition of HVAC, adding a garage, etc.).

This value is your adjusted basis, and you'll enter it in FreeTaxUSA software along with the selling price and other relevant information. The general formula is selling price (minus) adjusted basis (minus) certain costs of sale = gain. Unless the cabin is a primary residence, it's considered an investment, or second home and subject to long-term capital gains tax.

Here's an article from the FreeTaxUSA Community you might like to read on the topic.