Last year, my two siblings & I inherited my moms house. We sold it & divided the sale 3 ways. My mom had paid $200,000 for the house with an outstanding mortgage of $71,000. We sold it for $142,000. When it was all said & done we each received $20,000. A friend recently told me I have to report that "income" on my tax return this year. I did not receive any thing in the mail about it. What should I do?

You should have reported the sale on Schedule D, but no taxes were due because the sale price is probably well below the Fair Market Value at the time your mother's death.

To add, the executor of your mom's estate should provide to all three of you the estimated fair market value of the house as of the date of your mother's death. Your share of the FMV becomes your cost basis for the share of the proceeds that you realized when you sold the property. Report your portion of the proceeds (net of fees) and cost basis on Schedule D. If you have a gain then you will pay capital gain tax on that gain. But if you have a loss you cannot take a writeoff on the loss, as losses on the sale of personal property are not deductible.

You do not need to pay tax on the disposition of the inherited property; as long as the basis of th e inherited pty is more than the selling prie, $142K, selling price. Inherited property is always considered to have a long-term holding period. However,the LTCL, loss isn't typically deductible on your federal income taxes.
ALSO NOTE: A taxable gain or loss occurs when the inherited house is sold after the decedent's death. A gain exists if the sale proceeds exceed the date of death value. There is a loss if the sale earns less that the value at death. The value of an inherited house on the date of death forms the basis used to calculate possible taxable gain upon sale of the property.Gain or loss is reported on the income tax return for an estate if the house sells before being distributed to beneficiaries by the estate executor. The estate beneficiary reports the capital gain if selling the inherited house after distribution by the estate.A lower rate for long-term capital gain applies to assets sold after one year of ownership. However, all inherited property is taxed at the long-term capital gain rate when sold by beneficiaries

ALSO,even if it is loss, you have to report it. The loss is nondeductible.The proceeds from the sale will be reported to the IRS. They will not get your cost basis information. If you don't file, the IRS will assume your cost is zero and the entire proceeds are profit. Then you'll get a nastygram from the IRS with a huge tax bill.

Report on Sch D with net zero.However, for your state return, I guess you neeed to report the sale of your home on your tax return only if you have a gain and at least part of it is taxable.Please contact the Dept of Rev of your state for more info in detail.