Sale of inherited home.

[taxu2]

Client inherited home from father. The basis at the time of death was $14,000. Client remodeled home at a total cost of $45,000. They sold the house for $58,000. I am assuming this just gets put on Schedule D with a 1,000 loss correct? Then I see they were issued a 1099S form, so do I need to enter the 1099S sale of home worksheet and if so, how do I exclude the income since it was not a main home? 

[Terry53029]

your client would have a basis of FMV at time of his father passing, plus improvements.

If he has a gain you report the gain on schedule D. If a loss, cannot take a loss

[IRonMaN · Accepted solution]

But you can deduct the loss if the home wasn't used personally by the family between the date of death and date of sale.  It's basically investment property if it isn't used personally.  Don't forget to take any closing costs into consideration when calculating the loss.

[taxu2]

It was never used as a personal residence for the client. Does the 1099S form still need to be filled out? 

[IRonMaN]

You can just proceed to schedule D.

[LINDAAHILL]

Thank you for the response.  My client will have a loss on the sale of the inherited property based on the appraisal of the property at the date of death.  

Since it is a loss, does she need to report  it on her 1040?

Linda Hill

[sjrcpa]

If you don't report the 1099-S sale price client will get a matching notice nastygram.

[IRonMaN]

1.  Since a 1099S was most likely generated, of course you want to report it.  The IRS doesn't know if money was made or lost.

2.  If you had an accurate appraisal, why wouldn't you want to report it so your client can save a couple of bucks on their return?

[LINDAAHILL]

I have received two very different answers to my question about a loss on inherited property that was never rented and never used as primary residence by the person who inherited it.

There will be a loss based on the appraisal of the  property at the time it was inherited last year and the sales price.

Since it was not investment property,  I assume that if there is a profit you report it but if there is a loss you cannot deduct it and you do not need o show it on your return.

Thank you for your help with this.

Linda

[LINDAAHILL]

If a loss cannot be deducted, do you have to report the transaction on the 1040 of the person who inherited it?

[IRonMaN]

But if it wasn't used personally after death until the ultimate sale, it is investment property and the loss is deductible ---------------- assuming a reliable appraisal had been done on it.

[Terry53029]

As Ironman said, if you inherited a home and never lived in or used personally, it is considered an investment property, and you report the gain or loss on schedule D.

[BobKamman]

Don't think of it as a house, think of it as a truckload of hand sanitizer.  You thought you got a good deal on it for $100,000, but selling it on eBay brought in only $60,000.  eBay told IRS that you had $60,000 in sales.  How do you think IRS is going to know you lost $40,000 if you don't report your cost?

[Shirley79]

Are you still available for questions on this topic of capital gain?

My brother-in-law's mother passed away in 1995 at which time he inherited her house.  It sat empty all these years, and he sold it this summer.  My question is:  Are expenses paid thru the years for insurance, property taxes, utilities, and upkeep able to be added to the stepped up value of the house at time of death (as well as closing costs)?

[Terry53029]

I believe you can only add the closing cost, and any cost to get it ready to sell, but not the expenses incurred over the years. If your client made capital improvements over the years that would add to basis 

[BobKamman]

"Fixing up expenses" are a throwback to the old Section 121 rules, and by definition they aren't added to basis.  I would ask why it took so long, but I have a client who has been reluctant to sell his late mother's house for 10 or 12 years, and it's probably the same mental-health cause.  

[Shirley77]

Thank you.

[Shirley77]

Similar situation.  Too many memories tied to the house.

Thank you.