[maryburnham]

My parents deeded their house to me a few years ago. They both passed away 8 months ago and I had to sell the house to pay their funeral costs. Is this considered a loss as I had to pay more in funeral expenses than the I sold the house for? What will have to be included on my tax return if anything?

[AtlantaTaxExpert]

Did you live in the house as your primary residence for at least two of the past five years?

If yes, you will not have to report the sale.

If no, you WILL have to report the sale and pay taxes on the profit between what you sold it for and what your PARENTS paid for it when the originally bought it.

[ebaines]

Figuring the cost basis on a gift like a house can be a little more complicated than simply using the amount that the parents paid for the house. First you should add the costs of any capital improvements they may have made while they owned the house to figure their cost basis. If this amount is less than the fair market value (FMV) of the property on the date they gave it to you then this is the starting point for figuring your basis - to this you add the cost of any capital improvements you have made to the property since you owned it. Basis . But If their cost basis exceeded the fair market value of the property on that date, then determining your tax cost basis is a little more compliacted:

1. If you sold it for more than your parents cost basis, use your parents cost basis plus your capital inmprovements.
2 If you sold it for less than the FMV on the date of the gift then use the FMV plus capital imprivements as your basis.
3. If using steps 1 and 2 it turns out you have both a gain and a loss then you have neither a gain nor a loss.

If the property was sold at a loss you cannot deduct the loss, as the house is considered to be personal property, and you can't take losses on personal property (this assumes you didn't rent the house out).

[ScottGem]

The fact that you paid more in funeral expenses then you sold the house for, has absolutely nothing to do with an taxes on the sale of the house.

Whether you owe taxes depends on the difference between the sale price and the cost basis depends on whether the sale price is higher than the cost basis as well as whether you lived in the house.

Another issue here is whether you parents paid gift tax, when they signed over the house to you.

[AtlantaTaxExpert]

Scott,

Good catch on the gift tax, though it is likely they filed a gift tax return but paid ZERO gift taxes.