Sale of inherited property. surviving spouse who was not the beneficiary living in it for several years who paid all expenses. beneficiaries never had use of the proprtyd

[tammie]

Sale of inherited property in 2017.  Dad died in 2013; surviving spouse who was not the beneficiary lived in the house until recently then moved which freed up the house for Dad's daughters to sell--at a loss.  Surviving spouse paid all expenses until the day she moved out.  No rent ever paid to the owners (daughters). Daughters did not have access to the house at all. The CPA for one daughter said it is personal use property and therefore no  deduction on personal use property. My contention is that the daughters did not have any access to the house personally.  Any thoughts??

[IRonMaN · Accepted solution]

"which freed up the house for Dad's daughters to sell--at a loss"

Which means they couldn't sell it at a gain earlier because they let mom use it.  Sure sounds more like personal property than investment property.

[tammie]

Was not mom living there;  second wife.  Dad's will states that wife can live there until she dies or decides to move out.  Wouldn't personal use property mean that they could use the property for themselves.  Legally they did not have access to the house until she moved out.   When she moved out they had to repair and provide improvements in order to sell

[TaxMonkey]

The issue is somewhat different that you are suggesting, the sale of property by the remaindermen is prorated with the holder of a life estate, if the property is sold before their death.

[TaxMonkey]

When you let a relative use a house at less than Fair Market rent, it is personal use.

[tammie]

Was not a relative but a second wife for Dad.  Dad's will states that she has the right to live there until she dies or decided to move.  No access to the property until she moved out in March at which time the daughters worked on the house to sell.

[TaxMonkey]

So this situation is a bit more complicated, when someone is given a lifetime right to live in a property that is called a life estate, and when the property is sold prior to their death, they are entitled to some of the proceeds as well as some of the tax consequences based on their life expectancy.  There is more at work here than merely if the remaindermen can deduct a capital loss.

[sjrcpa]

and April 11 is not a good time to learn it