Inherited House

2008-03-11 by

Today TaxMama hears from Don in Texas who tells us, “My brother and I inherited a house in 2004 from my aunt. Neither of us have ever lived in the house, nor have we rented it out. We sold the house in 2007 for $10K less that the FMV upon the death of my aunt. Do we need to report the sale to on our tax returns? Can we claim the loss?”

Dear Don,

How nice of you aunt to leave you her house! Since neither of you have never lived in it, for you, the house was never a personal residence. Essentially, in your hands, it became investment property.

You must certainly report the sale. Report the sale on Schedule D.

For purchase date, since you have the property for more than a year, use the date of death. And for purchase price, use the value at date of death. PLUS….

You paid property taxes, insurance and utilities on the house all these years. You protected your investment. Did you take deductions for the property taxes? If you didn’t, then add them to the value at date of death. If you did, skip that. But add in all the other costs you were never able to deduct – insurance, utilities, gardener, etc. Hopefully, you have receipts?

Don’t forget to add all the commissions and selling costs to the cost of the house. Those will all reduce your profits, too.

Also, be sure you put a copy of the appraisal at date of death into your tax file and your brother’s, just in case you’re audited.

So your loss may be more than just the $10,000. Aren’t you glad you asked?

And remember, you can find answers to all kinds of questions about inherited property and other tax issues, free. Where? Where else? At TaxMama.com

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# | Posted in Tax Quips | Comments » (2)



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  1. Norman Says:
    March 11th, 2008 at 10:05 pm

    In response to your question, "Did you take deductions for the property taxes?," if the client(s) itemized for the year in question, then Don and/or his brother should have included the taxes on Schedule A in proportion to what they actually paid. If not, their return(s) should be amended. The property taxes as itemized deductions will reduce the income tax better than as an increase to cost basis, particularly when the loss is limited to $3,000 each year. Also, if there are significant long term capital gains the same year, the best tax reduction would not be at the capital gains rate, but at the ordinary income marginal rate associated with Schedule A deductions.

  2. Lucy Moore Says:
    March 05th, 2009 at 02:10 pm

    my mother inherited a house in 2008 abd we sold it at auction same year. will she have to pay on the money she made. it sold for 15000.00 more than appraised for. then there would be expenses off.
    what about household stuff that sold at the auction>

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