I have a question about how to calculate capital gain. My siblings and I inherited our mother’s home. I bought the house from the other siblings and later sold it. What is my basis of inherited property — How do I report this transaction?
If you need to know how to calculate capital gain, take these steps:
- Determine the basis. For basis of inherited property, the basis is the fair market value (FMV) of the home on the date of death. However, since you bought the house from your siblings, you’ll follow this process to find the basis:
- Start with the purchase price.
- Add the FMV of your inherited share.
- Subtract any buyer’s settlement expenses.
- Determine the amount realized on the sale. The amount realized is the sales price minus settlement charges the sellers pay.
- Find the gain or loss. Subtract your basis from the amount realized. If you have a positive number, there’s a gain. If you have a negative number, there’s a loss.
Report capital gains and losses on Form 8949. If you used the home for your personal use only or sold it to someone related to you, you can’t claim a capital loss. However, you should still report the sale on Form 8949.
Related Resources
What are the differences between real estate taxes and property taxes? Learn more from the tax experts at H&R Block.
Generally, paying gift tax is not an issue for the person receiving the gift. The giver, however, will generally only file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $15,000 per person for 2018. The giver may also not owe gift tax due to their lifetime exemption.
Is your work-study income considered taxable by the IRS? Learn more from the tax experts at H&R Block.
Adjusted Gross Income is simply your total gross income minus specific deductions. Additionally, your Adjusted Gross Income is the starting point for calculating your taxes and determining your eligibility for certain tax credits and deductions that you can use to help you lower your overall tax bill.
