My sister & I inherited real estate from our mother. Subsequently, she sold me her portion. I sold the property last year and am not sure what to use as the basis. Do I use the appraised value as of the date I sold or the amount I paid for her portion? For example, the property was worth $80,000 when we inherited it, and I paid her $40,000 for her share. Do I use $80,000 or $40,000 as my cost basis, minus any deductions, of course.

Your basis is your 40,000 (FMV of your half when you inherited the property)+ the 40,000 you paid your sister. 80,000 total.