Ot tax question

[Mikej]

a guy at works mother passed and he sold her house he inherited 50% of- how does he claim it with his 1099? 1099 has the correct amount listed.

[tumbler]

Can you provide a little more detail? You mentioned that the 1099 has the correct amount listed. What is he attempting to claim? Do you mean how does he report that income on his tax return?

[Aaron O]

Can you provide a little more detail? You mentioned that the 1099 has the correct amount listed. What is he attempting to claim? Do you mean how does he report that income on his tax return?

+1. I'm not sure what you're trying to get across here. If I recall how this works (and I took taxation, but don't do it enough to remember with precision) he would be declaring the capital gain on the house. In other words the amount it sold for in excess of what was paid for it by the person he inherited it from. As I recall there are some expenses that can be capitalized and deducted from the gain, but my memory on what can and can't be expensed is hazy. Some legal and closing fees are part of the home's cost as I recall. Some (not all) repairs/additions can also be deducted, at least in part. As memory serves, maintenance costs aren't expensed (like roof repair), but costs like an addition can be.

[Mikej]

Yes, he understands he has to "claim" and he understands it is not enough to have to pay taxes on, but he is unsure of how to tie it in on the schedule "D" so it doesn't look like he needs to pay taxes? He is under the impression that since the profit was not over 500k and it was inherited that no taxes are due. Thanks by the way.

[jlyon]

Generally the basis of an inherited property is the worth of the property as of the day of death not what the original owners paid for it.

So any gain should be only if the property appreciated between the day of death and the sale.

Of course there are always a few exceptions so seek professional advice.

[Hardlyrob]

Unless it is a taxable estate - meaning in excess of $5.43 million, there is no tax. Capital gains on property below $500,000 (filing joint) are not taxed, and should not be claimed as taxable income - call an accountant there should be no 1099 for a capital gain on a residence - doesn't make sense.

[SoCalSteve]

Just spitballing here, but isn't there a minimum inheritance amount before a tax picture kicks in???

Definetly seek the advice of a good CPA who is versed in this.

Good luck!

[Ken Robb]

Generally the basis of an inherited property is the worth of the property as of the day of death not what the original owners paid for it.

So any gain should be only if the property appreciated between the day of death and the sale.

Of course there are always a few exceptions so seek professional advice.

This is my unprofessional opinion as well. Did the heirs determine if any estate taxes are due? It would probably be a good idea to have some record like a written appraisal or a Realtor's Opinion of Value showing the value of the property when the owner died and the closing/settlement statement from the sale by the heirs.

[Mikej]

Right to the above - you don't have to pay taxes, but you do have to tell the government. It is actually the sale of an investment property of which you don't have to pay taxes on as long as the profit is not more than 500k. IRS form 8949?

[Ralph]

Did the estate sell the house? Or did the heirs inheritit it first, then sell it?

If the heirs sold it....they are entitled to the step up cost calculation. Value date of death or 6 months after (I believe).

If estate sold it....and funds disbursed, the estate accounts for sale. As above said...no cap gains taxes owed if profit under $500,000. But still have to account for it. State and Fed Estate taxes a separate issue. Probably have a form to fill out, even if nothing owed.

Went thru this a couple years ago, memory fuzzy.

[carpediemracing]

This is sort of like someone with a bike asking a bike shop what spoke length they need to build a wheel but not really sure which rim or what hub or spoke count, just that they'll be 700c.

My wife is a CPA and whenever I run across these kinds of questions my first instinct is to ask her (because if I can help I will). Then she starts listing the variables and I realize that it's a really long post that I don't completely understand. The correct first response is "find a CPA and ask". There are always variables to take into account and a (good) CPA ought to be versed in them.

[Mikej]

This is sort of like someone with a bike asking a bike shop what spoke length they need to build a wheel but not really sure which rim or what hub or spoke count, just that they'll be 700c.

My wife is a CPA and whenever I run across these kinds of questions my first instinct is to ask her (because if I can help I will). Then she starts listing the variables and I realize that it's a really long post that I don't completely understand. The correct first response is "find a CPA and ask". There are always variables to take into account and a (good) CPA ought to be versed in them.
I know I became nterested in his situation and was unable to find answer. Thought I'd toss it on the forum-it's not really that hard- a person inherits a house from his mom, laywer sends him a 1099 from sale because starting this year you have to let the government know that you know they know you sold it. You have to come up with the papers.

[Aaron O]

As stated earlier, I'm an aspiring CPA, not a qualified one. I'm taking the exams this year (wish me luck). I also don't regularly do returns or work with estates, so take anything I say with a huge grain and you should talk to an enrolled agent or CPA.

The 500,000 exception discussed above is, as I recall, for residences and you're only entitled to take it once every so many years (I think I remember 3). You are supposed to live in the home for certain periods of time as I recall...but there may be exceptions for inheritance. It is not an automatic entitlement.

As far as the basis, my recollection is that it usually carries over rather than being rebooted at death. Think of it this way...a widget was purchased for 10,000. At the time of the death, it was worth 300,000. Generally there are no estate taxes (estate tax thresholds are fairly high and apply to a very low percentage of people). If the inheritor sells it for 325,000, there was never a taxed capital gain on 290k of earnings. The rules usually don't allow for that, and the basis does carry over as I recall. I might be wrong...I don't do it regularly and it's been a while since we went over this. I might try and find the answer in my old text if I have time.

There was a rule surrounding length of time in which the home was sold from death, but I don't recall the rule.

You should talk to someone who knows the rules - there are expenses that can be added to the basis as well if I recall.

[jlwdm]

Generally the basis of an inherited property is the worth of the property as of the day of death not what the original owners paid for it.

So any gain should be only if the property appreciated between the day of death and the sale.

Of course there are always a few exceptions so seek professional advice.

This quote is correct.

The $250k/$500k exception would only kick in if the person who inherited the property lived in the house. The max deduction would require living in the house for 2 of the last five years before sale.

Lots of bad advice in this thread already.

Jeff

[Ralph]

As I said above.....It will depend on who sold it. The estate, or the heirs after they inherited it. It's not clear to me from info given if the estate executor sold the property with intent to distribute funds to heirs, or if it was sold after executor turned it over to heirs. Are the 1099's coming to executor with estate tax ID before estate was settled and closed, or to heirs SS numbers after they were legal owners.

It could be either way. If he sold his share after estate was settled and he actually was recorded 1/2 owner, then he would be entitled to a step up cost basis treatment on his share.

[Mikej]

thanks. my understanding is it was sold 9 months after death. Nobody lived in it. It was a 50% / 50% with a sibling.

[Ralph]

thanks. my understanding is it was sold 9 months after death. Nobody lived in it. It was a 50% / 50% with a sibling.


Yes.....But who owned it at time of sale. The estate, or had executor already transfered ownership to heirs, and then they sold it. Or did estate own half, and sibling own half? If estate sold it, the cost basis was cost basis of Mom. And would be entitled to $500,000 exclusion on profit. If heirs sold it, they got step up basis to use in their profit or loss calculation.

I think your friend needs some professional help with this. Lots of variables.