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pip601 · Mar 29, 2005, 08:22 AM

My brothers and I (4 of us) each inherited equal portions of my mother's house when she died. We sold the house shortly after the estate was settled and each of us received ~ 18,000 (there was no mortgage). Now, I am aware that any gain is taxed as long term no matter how long we owned it, since it was inherited, but my ? Is how much of that do we claim, if any.

There was no appraisal at the estate settlement, it as listed on the tax rolls for 74,000 and we sold it for 82,500. Do we claim the 8500 as long term capital gain? (of course it would be 2125 for each of us)

THanks for any guidance you have

AtlantaTaxExpert · Mar 29, 2005, 09:29 AM

Pip601:

You do have report the sale on Schedule D. :(

However, on the day of your mother's death (or exactly six months after her death, depending on which date the estate selected), the basis for your mother was stepped up to the fair market value (FMV) on that date.

For this reason, you probably have very little, if any, capital gain to report and therefore minimal, if any, taxes to pay! :)

If you are preparing the Schedule D yourself, your date of purchase is the date of your mother's death. Your basis is one-fourth of the FMV of the house noted above. If a Form 1099-S was filed (check with the title company who handled the transfer of the deed), make sure the sales proceed on your Schedule D matches what was reported to the IRS. Based on what you said in your posting, the sale proceeds is $20,625. You can add one-fourth of the sales costs to your basis.

If this is a bit much for you, get professional help in preparing your return this year. Preparing the Schedule D incorrectly is easy to do!

pip601 · Mar 29, 2005, 10:19 AM

Thanks ATE, I guess my next "stupid" question is how I determine what the FMV was at the time of the settled estate, could it possibly be much lower than the price we sold it for? I did notice that the tax rolls now list the house at $1k more than what we sold it for??

I do have a 1099-s from the title company which shows the 1/4 the total amount of the sale of the house.

AtlantaTaxExpert · Mar 29, 2005, 11:05 AM

Pip601:

Your best bet is comparative values. A call to a real estate office would probably produce a number of like-sized houses in the neighborhood and what they sold for. A numerical average of the sales price for five house of similar size and construction within a 10-mile radius of your Mom's house that all sold within 30 days of her death will produce a FMV that would be acceptable to the IRS.

Joe L · May 25, 2005, 01:31 PM

Hi, my name is Joe from California and I have a very similar inheritance situation: 1/4 ownership of a house that has recently sold. Can anyone help with a few simple Schedule D questions, please?

I see from ATE's reply to Pip601 that it is proper to enter 1/4 of the FMV of the house as the basis on line 8e, but in order for the gain in line 8f to equal 1/4 of the total, one would have to list 1/4 of the sales price on line 8d -- is that correct?

Also, I see that I can add 1/4 of the sales costs to my basis... are there any other deductions or credits that can be taken (either on Schedule D or on 1040) to reduce the capital gain?

Finally, do Form 1099-S and/or documentation of the FMV need to be included in the tax return?

Thanks in advance for any advice!

AtlantaTaxExpert · May 26, 2005, 06:24 AM

Joe L:

As a matter of routine, I do not attach copies of the supporting documentation to the returns I prepare, because the IRS will not normally challenge your computations for basis and FMV if they are reasonable. The only times any of my clients have ever had their Schedule D figures challenged is when they claimed extraordinary losses on stock sales, and those problems were resolved when they faxed in copies of the brokerage statements showing what they paid for the stock.

Virtually ALL of the costs reported on the closing statement can be used to reduce the capital gains. Further, costs you incurred to prepare the house for sale (fix-up costs, cleaning, real estate commission, personal mileage incurred if you handled the sale accrued at 40.5 cents per mile) can also be deducted.

However, you cannot depreciate the house unless you collected rent.

Joe L · May 26, 2005, 01:10 PM

Thank you for your reply, ATE!

AtlantaTaxExpert · May 30, 2005, 09:32 AM

Glad to help!