I have a question about capital gains on inherited property. My two siblings and I inherited my mother’s house, which remained vacant until we sold it at a loss (based on the appraised value). Are we able to claim a capital loss on inherited property?
Regarding capital gains on inherited property (and losses), you can claim a capital loss on inherited property if you sold it and all of these are true:
- You sold the house in an arm’s length transaction.
- You sold the house to an unrelated person.
- You and your siblings didn’t use the property for personal purposes.
- You and your siblings didn’t intend to convert the property to personal use before the sale.
An arm’s length transaction is a transaction where the buyers and sellers have no relationship to each other. Except when handling an inheritance, related parties include:
- The estate
- The executor
- Beneficiaries of the estate
Report the sale on Form 8949, which will transfer to Schedule D. Enter your basis in the property as your share of the fair market value (FMV) of the property on your mother’s date of death. Ex: The FMV was $150,000. You split it equally three ways. So, your share of the basis is $50,000.
For the date acquired, enter “Inherited.” This makes sure you receive long-term capital gain or loss treatment. Then, enter the date sold and the amount realized. The amount realized is the sales price minus any seller-paid settlement costs. You’ll only report your share — 1/3 of the amount realized. If your share of the amount realized is less than your basis, you’ll have a capital loss on inherited property.
Join H&R Block as we dig into the the mystery of deferred compensation plans for everyday people and the ultra-wealthy.
Wondering if pell grants, student loans and work study programs are taxable? Join H&R Block as we explain the tax consequences of federal student aid programs.
Do you need to report your social security disability income on your tax return? Learn more from the tax experts at H&R Block.
Learn more about social security tax and how it affects your income and benefits from the tax experts at H&R Block.