Solved

Proceeds from the sale of a deceased parent's home

Forum|Forum|6 years ago
June 21, 2019
3 replies
0 views

My wife's father passed and his home is held within the estate (not bequeathed to or owned by my wife or her sisters). The sale of the home closed this week. The proceeds are to be distributed across the 3 sisters once the remaining mortgage debt is satisfied this week. The estate will not close until sometime in the fall. I have read that this money, because it is the result of the sale of a decedent's home, is not taxable - to either the estate OR the recipients. I have also read that it IS taxable as income to the recipients. And finally, I have also read that the capital gain (or loss) is taxable to the recipients - the difference between the fair market value and the selling price. before we do anything with our share of this money, we need to know what we are liable for. Thanks!

Best answer by Anonymous_

@bkw1962 wrote:
...I have also read that the capital gain (or loss) is taxable to the recipients - the difference between the fair market value and the selling price.

That is essentially correct; the basis of the property inherited from a decedent is generally the FMV of the property on the date of the decedent's death and that basis would be subtracted from the amount realized (selling price less selling expenses) in order to calculate any gain/loss.

See https://www.irs.gov/publications/p559#en_US_2018_publink100099643

Note that, in this instance, the estate will likely have to file an income tax return (form 1041) to report the sale of the house and it is the estate that will potentially report any capital gain or loss, which will then be passed through to the beneficiaries on Schedules K-1.

See https://www.irs.gov/publications/p559#en_US_2018_publink100099689

A

Anonymous

the reason your getting some different answers is because it depends on who is doing the selling and what was done with the house after they dies. was it rented out. did it just sit there.

Sale of decedent's residence. If the estate is the legal owner of a decedent's residence and the personal representative sells it in the course of administration, the tax treatment of gain or loss depends on how the estate holds or uses the former residence. For example, if, as the personal representative, you intend to realize the value of the house through sale, the residence is a capital asset held for investment and gain or loss is capital gain or loss (which may be deductible). (gain or loss = sales price less FMV at date of death less selling expenses) This is the case even though it was the decedent's personal residence and even if you did not rent it out. If, however, the house is not held for business or investment use (for example, if a beneficiary resided in the residence rent-free), and you later decide to sell the residence without first converting it to business or investment use, any gain is capital gain, but a loss is not deductible.

not let's take it one step further and say that the estate is terminated after the sale and all assets including sales proceeds are distributed to the beneficiaries. they should each receive a K-1, which will report the gain or loss on sale as well as any other taxable items such as interest, dividends.

i

A

Anonymous_Answer

Employee

@bkw1962 wrote:
...I have also read that the capital gain (or loss) is taxable to the recipients - the difference between the fair market value and the selling price.

That is essentially correct; the basis of the property inherited from a decedent is generally the FMV of the property on the date of the decedent's death and that basis would be subtracted from the amount realized (selling price less selling expenses) in order to calculate any gain/loss.

See https://www.irs.gov/publications/p559#en_US_2018_publink100099643

Note that, in this instance, the estate will likely have to file an income tax return (form 1041) to report the sale of the house and it is the estate that will potentially report any capital gain or loss, which will then be passed through to the beneficiaries on Schedules K-1.

See https://www.irs.gov/publications/p559#en_US_2018_publink100099689

T

todd_in_minnesota

In this situation, where is the state income-tax liability?

E.G. When the estate sells real estate in 'state A', and then the estate closes, if the income from this sale is distributed to individuals residing in 'state B' and 'state C', is there any state income-tax liability in 'state A' (state where the sale occurred), or only in 'state B' and 'state C' (where the recipients reside)?

Many thanks in advance for this clarification!

P

PattiF

Each state has its unique filing requirements and differences in what is taxable income. What are States A, B, and C?

@todd_in_minnesota

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

R

rktrout8699

Your wife inherited the property. Inherited property gets a step-up in tax basis to to its value and her parent's date of death. Therefore, the only gain that would be taxable would be an increase in value from the parent's date of death to that date of sale.

Hope that is helpful.