How to I report an inherited deed of trust that still has a mortgage being paid on it in another state

Forum|Forum|3 years ago
March 13, 2023
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I just inherited the deed of trust on a house with a mortgage being paid on it. The deed has already been transferred to my name and the owners are paying the monthly payment to me. Do I have to report the monthly payments on my taxes? Thanks for any help anyone can give me.

Best answer by Anonymous_

Given this scenario (executory contract), you should consult with a local tax professional and/or legal counsel

See https://taxexperts.naea.org

As a North Carolina resident, the state can levy a tax on all of your income. You may need to file a California return if the amount of income you received exceeds the threshold for filing (you certainly do have California source income regardless). North Carolina may provide a credit for any tax you are required to pay on any California return.

Anonymous_Answer

Employee

Given this scenario (executory contract), you should consult with a local tax professional and/or legal counsel

See https://taxexperts.naea.org

ChowderncAuthor

This is what's confusing to me. This is an inheritance so I would think that it should be considered tax free. If the house was sold and it was just cash, wouldn't it be non-taxable?

Mike9241

you may need to talk to the lawyer that's was handling the estate. evidently the deceased sold the property on an installment basis - charging interest on the deferred payments and collecting principal that represents the sales price - basically seller financing. certainly, the interest is taxable. but whether the principal is taxable depends on whether or not the seller had a taxable gain being reported on the installment basis. if the seller did not use the installment method or had no taxable gain, then you have no income to report on the principal you receive. if they used the installment method with a taxable gain. that unreported gain at the time of death is known as income in respect of a decedent and there is no step-up to fair market value so the recipient is taxed as it is collected.

Anonymous_

Employee

@Mike9241 wrote:

....if they used the installment method with a taxable gain.....

Yes, precisely why @Chowdernc needs to consult with a local professional who can make that determination based upon an examination of the decedent's prior return(s).

ChowderncAuthor

I knew it would get complicated. Thank you for helping me on this. I'm gonna start trying to find a local person to help me and if I have to ask for an extension, then I will.