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Inheriting a property/home

taxnewbie01

My brother in law passed away end of December 2022 and his estate in Florida went to probate. The Florida probate court awarded my brother in law's property (house) on 4/19/23 to his sister (my wife). My wife and I immediately put it up for sale thereafter. The property was sold on 7/20/23. Given the short time frame, 3 months, from probate award to sale of home, we believe there was no to very little appreciation from cost basis. Actually, there may even be a loss if expenses (fixing up, cleaning, real estate agent commission, survey, title insurance and fees, prorated taxes and utilities) are considered or deducted from the sale of the property. Should/ Do we need to report any income from this sale or should/ if there was way to deduct these expenses from our tax return? What should we do? Thank you

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Accepted answers

MatthewD

Generally speaking, you would subtract the selling expense from the Sales Price. Adding them to the basis would accomplish the same thing.

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Kellip

First, we are very sorry for the loss of your family member. Generally, you will need to report the sale. To determine if you have a loss or a gain on this property there is information to consider, such as the cost basis, sales price and any expenses.

The cost basis is the fair market value of the home on the date your loved one passed away.

Your sales price is your sales proceeds and is everything you received from selling the inherited home. Did you receive a 1099-S for the sale? If so, that is typically the proceeds listed in Box 2. If not, Sales proceeds is the gross proceeds minus selling expenses.

Your selling expenses are costs directly associated with selling your home. The following are a list of expenses that will decrease the amount realized from the sale of your home and could potentially decrease the gain realized from the sale of your home (the smaller the gain, the less taxes you will pay):

Sales commissions
Any fees for a service that helped you sell your home without a broker
Advertising fees
Legal fees
Any mortgage points or other loan charges you paid that would normally would have been the buyer's responsibility

If you sold the inherited property for a loss, you can claim a capital loss deduction if all of the following are true:

The sale was a transaction where you didn't have a business relationship with the buyer.
You sold the property to an unrelated person.
You didn't use or convert the property for personal purposes.

The following IRS links are helpful for this type of situation.

https://www.irs.gov/pub/irs-pdf/p551.pdf

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances

You would typically enter this information in our software on the Stocks and Investments Sold page.

taxnewbie01

https://community.freetaxusa.com/discussion/comment/1520#Comment_1520

Thank you for your condolences as well your help with answering my questions. It was a difficult time for our family.

Since it was our first time selling any home, I didn't know I was suppose to receive a 1099-S or if I had received a 1099-S for the sale, but thankfully after reading your reply, I called my real estate agent and title company where they reissued the 1099-S.

I didn't know that "the cost basis is the fair market value of the home on the date your loved one passed away" because I thought it was the date of the probate court award judgment. That was helpful. But now, how do I find out the "fair market value of the home on the date my brother in law passed away?Also, how would they even value a property at time of death since it is so subjective and what a party would be willing to pay because you can always list a price what you think a home is worth or value but the party who purchases it determine what they are willing to pay, which may be more or less of asking price?

Thanks in advance.

KeriC

Given the short timeframe between inheriting the property and selling it, and as long as home prices in the area didn't have a dramatic increase or decrease over those several months, you are probably safe to assume that the fair market value of the home remained the same during that time and would match the price that you received for the sale of the home.

If prices in the area did increase or decrease dramatically, it may be helpful to consult a local real estate professional who may know the average increase/decrease in value over that time and you could use that average to help determine the fair market value on the date of inheritance.

taxnewbie01

https://community.freetaxusa.com/discussion/comment/1790#Comment_1790

Ok. I consulted with the real estate agent who helped sold the home and she provided an home value estimate based on comparable sales. There was some appreciation from the date of death to sold date.

So if I understand this correctly based on the above replies as well my understanding from just preliminary research of this topic: I enter from the 1099-S Box 2 (gross proceeds) into the software on the Stocks and Investments Sold page- sale proceeds box. Then the cost or other basis is the fair market value at time of death (this is where my real estate agent home value comes in) plus selling expenses, such as real estate commissions, survey, title insurance and fees. In other words, I add the selling expenses to the cost basis (and not deduct from sale/ gross proceeds). For example, gross proceeds is $100,000 from 1099-S Box-2. The cost or other basis is $95,000 (Fair market value at time of death) + $10,0000 selling expenses (real estate commissions, survey, title insurance and fees) = $105,000. This would come out to -$5000 capital loss deduction that I can claim.

Thank you for your help.

MatthewD

https://community.freetaxusa.com/discussion/comment/1833#Comment_1833

Hello,

Yes, that is a reasonable way to approach your situation and report the sales expenses relating to the sale of this property.

taxnewbie01

https://community.freetaxusa.com/discussion/comment/1850#Comment_1850

I'm sorry but I'm confused. Do I add the sales expenses to the cost or other basis (fair market value at time of death) or subtract from gross sales/ sale proceeds of the inherited home?

Thanks

MatthewD

Generally speaking, you would subtract the selling expense from the Sales Price. Adding them to the basis would accomplish the same thing.

taxnewbie01

https://community.freetaxusa.com/discussion/comment/1874#Comment_1874

Ok. Thanks! I want to be able to sleep at night.😂