Does this transaction fall under Capital Gains/Loss or Gift Tax? And is filing necessary?

Forum|Forum|1 year ago
December 5, 2024
2 replies
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Hello fellow taxpayers!

Just wanted a clarification on how this should be filed or if it even needs to be filed at all.

Money received from a sibling as a buyout for inherited property that was left by a parent.

In this case the money received from the buyout was substantially less than the FMV of the property at the time the deceased passed away and even far less now. So here's the breakdown example: FMV was 400K, buyout was 150K. How should the person who received the buyout report the 150K on their taxes and does it even need to be filed? Should it be reported as a Capital Loss which in this case given the example it would be or given that it's a transfer of a property between two siblings would it be subject to the gift tax?

Also, if there is no other taxable income for that year or it falls under the federal threshold for filing, does the IRS still require a tax return to be filed just for the purposes of having this transaction on file?

Thank you for the help in advance!

Not A Product Question

Mike9241

the seller is supposed to report the sale, especially if they got a 1099-s. however, because this is a sale between related parties (siblings) the loss is not allowed. They would enter cost in the proper column of form 8949, then use code L and report the loss as a positive number in column g.

if they got a 1099-S, they need to file. Otherwise, see this link to see if they need to file based on gross income. Gross income is not reduced for capital losses.https://www.irs.gov/newsroom/heres-who-needs-to-file-a-tax-return-in-2024

taxman33Author

Thank you for the reply. I believe you meant to say report it as a negative number and not positive correct?

So it sounds like from your response that unless a 1099-S is received you would not need to file considering it would be a loss and losses can't be reported because it's between two siblings. Here's my followup question tho, how do I prove all this to the IRS and make sure that I'm ok if a return is not filed? Just keep copies of all documents associated with this like for example, the Quit claim Deed, some type of FMV valuation that proves the value of the property was significantly greater than what I received in the buyout?

Will Turbotax even allow me to file if it's not necessary just so the IRS has proof of all this?

Anonymous_

Employee

No text available

Bsch4477

Employee

Seems like it was a sale of inherited property so your cost basis was the value at the time of the death of the decedent. You don’t get to deduct a loss on the sale of personal property.