My husband and his sister inherited the family home after the death of their mother in 2006. Since she was in a nursing home at the time of her death, they rented it out to help pay for the costs of her care. When she passed, there were tenants in the home, so they opted to continue renting out the home. There were no "inheritance taxes" paid due to laws in our state, but the house was claimed on both tax returns as investment property, with each claiming 1/2 of the income and expenses. At the time of her death, the house appraised for $220.5k.

The home was sold in 2011, at which time it was appraised and sold for $104k, and after mortgage payoff, settlement charges, etc. the net proceeds from the sale of the home was $65.7k, which was divided equally between them.

Since this home was valued and sold for far less than the value of the home at the time of her death, is this considered a "capital loss" on our taxes? I have seen similar questions asked but none in which the property was kept and rented out for a time. Either way, I need help in knowing how to file properly.

Thank you!

In my opinion, the house is a business property, so its sale at a loss is declared on Form 4797 and the loss CAN be deducted from both sibling's tax returns.