Im updating this question as I am currently dealing with a similar situation. My father passed away at the end of 2009 out of state. My uncle is the executor of the will and the home was deeded to me by the estate middle of 2011. My husband and I made repairs to the home and readied it for sale. At the time of sale, the appraisal for the home was 68,000.00- due to the market and the cost of care to a home out of state, I sold the home that was unoccupied nor had it been lived in since the death of my father. I sold the home for 26,000.00 less than the appraised value. I also incurred auction/real estate fees. The tax preparation service I use for our personal taxes is basically telling me that a loss on the home is very hard to claim with the IRS. I also have 14,000.00 claimed from the estate attorney and the tax preparation service said something like, " we can just wash this, between the two". What exactly does this mean? Im the sole heir to my fathers estate. I inherited some money and a home that was sold.

First, please don't reopen old threads. We prefer each question in its own thread.

Your loss has nothing to do with the current appraised value. An appraised value is a guesstimate on the current value of a property and has nothing to do with taxes. You should have had an appraisal done at the time your father died. That is the cost basis on which tax liability starts. You can then add the costs of any capital improvements, not maintenance and repairs to this cost basis. If the sale is less than the cost basis, you have a loss.

Based on the information provided in the other thread, (https://www.askmehelpdesk.com/taxes/...ty-328811.html) it all hinges on whether you can claim the property was investment property whether you can claim a loss. Since the deed was transferred to your name in the middle of 2011, I'm not sure if you held it long enough for it to be considered investment property.

If you sold for more that the cost basis, then you have a gain, which does need to be claimed.

Frankly, I would file my return making the assumption that it WAS investment property. And let the IRS say it wasn't, then argue the point.

You will find that most people on this Board do not feel that the loss on the sale of an inherited principal residence is deductible. The IRS position from the Chief Counsel's office (CSCA 1998-012) supports this (loss non-deductible unless the property has been converted to income producing property). However, this position seems to conflict with the advice offered in IRS Pub 559.

I tend to lean to the fact that the loss may be deductible as the IRS position is in conflict with various court cases from 1945 forward. In these cases losses from personal use property prior to the date of death (from yachts and jewelry to real estate) were allowed. However, any personal use after the date of death generally would result in the loss not being allowed.

I would go meet with your tax professional, research these cases, see if the facts of these cases seem to fit your situation and then make your decision.