[AdamHasTaxQuest]

How do you treat carrying costs associated with an inherited house that is held only during a single tax year? To use the language of the IRS, the house was held with the intention of realizing the value through sale. In other words, I inherited it in 2016 and sold it in 2016, never intending to do anything other than sell it. I now believe that my capital losses are deductible, as per Publication 559, page 17, but what about the carrying costs? The expenses I’m thinking of are relatively small things like property taxes, utilities, insurance, cleanout costs, etc. Depreciating the property would seem silly because the house was sold in the same tax year in which it was inherited, so any depreciation would have to be immediately recaptured. So is depreciation necessary? And where do these other expenses go? On Schedule E? Or are they added to the basis, thus making the loss somewhat bigger? Please note that the property wasn't rented out at any time. Thanks in advance.

[ebaines]

Please clarify something: page 17 of Pub 559 has to do with handling the estate's tax return, not your personal tax return. Yet you said you "inherited" the property, which means it belongs to you, not the estate. So - are you asking as an executor, wanting to know how to file an income tax return on behalf of the estate, or are you asking as an heir and how to treat this for your own personal income tax purposes? Based on your other recent post: https://www.askmehelpdesk.com/taxes/...se-831058.html I assume you mean the latter, in which case Pub 559 is not relevant.

[AdamHasTaxQuest]

Thanks for the response. That's true, 559 is about the estate's return, but if the estate can take these deductions then why can't an individual? After all, gains and losses for an estate are intended to be passed through to beneficiaries eventually. I can't find any language in any IRS publications that address this, one way or the other. But I have found the following 6 links to third party sites; the links indicate that an inherited residence should be treated as investment property so long as the heir doesn't use it for personal purposes:

Tax Consequences of Selling an Inherited Home | LegalZoom Legal Info

https://ttlc.intuit.com/questions/3246132

Ordinary loss: extraordinary tax deduction | Bankrate.com

Tax Break for Sales of Inherited Homes | Russ Merrick, EA & Associates

Tax Break for Sales of Inherited Homes | Boman Accounting Group Inc.

Inheritance | TaxGeeks

I really would prefer to have something from the IRS, regardless of what it says, as that would be more authoritative, but I can't find anything. I don't want to miss out on a large deduction if I'm entitled to one, but I also definitely don't want to take a deduction to which I'm not entitled. Any thoughts based on the links? The opinion of the tax expert who answered my previous question was that I should take the deduction because I now have enough material to defend the loss if the IRS questions it.

[AtlantaTaxExpert]

I am the expert that Adam refers to, and I DO support his plan to claim the loss associated with the sale of the house.

As for the carrying costs, those are born by the estate, NOT the heir, so they cannot be deducted by the heir.

They CAN be deducted if the estate has to file a fiduciary return (Form 1041), but I do not think that happened here.

[AdamHasTaxQuest]

Yes, actually the estate is filing a 1041, but the house had already been transferred to me before any significant expenses were incurred (an attorney performed the deed transfer after my father's passing). And, of course, the sale was made by me, not the estate. So, in other words, all property taxes, insurance, etc. were paid directly by me, the individual, after the deed transfer, but before the sale. To simplify things, assume my father passed away on January 1, 2016, the deed transfer was executed on February 1, 2016, expenses were incurred on March 1, 2016, and the closing took place on June 30, 2016. I hope this helps to clarify. Does this change the calculus?