Sale of Inherited Homes

[Yardley CPA]

Parents willed two homes to their only child. Only child is married and sold both of the homes (one was the parent's primary home and the other was a vacation home that was never rented.) Both homes sold after the final 1041 was filed but within a year of the date of death. Would this be reported as a Short Term Capital Transaction on Schedule D of the child's personal return (non-deductible loss?)

If there was a gain (sales price exceeded FMV) I assume ti would result in a taxable amount realized by the child?

I have little experience with estates and would appreciate any input.

Thank you.

[Lion EA]

Inherited property is defined as long term. If child didn't live in home, then were they investment property in her hands? If so, a loss is deductible. Do you have the cost basis at date of death or alternate valuation date?

[Joel]

Since homes were willed to the child a step up in value(basis) of the homes to the date of death. The estate would have possibly determined the value to determine if an estate tax return was required. Inherited property is long term as stated by Lion. The gain or loss would go on Sch D with the purchase date entered as "inherited".

[Yardley CPA]

Thank you both. So the loss is deductible on the child's return.

[mcb39]

All of the above are correct and the loss is indeed deductible as a Capital Loss. I have had several of these. One client sold the house she inherited from her father for over a $200,000 loss. She will be carrying this $3000 limit forward for a good long time. And, in WI, the loss allowed per year is $500. (Inherited homes have their own set of rules)

[michaelmars]

Inherited property is defined as long term. If child didn't live in home, then were they investment property in her hands? If so, a loss is deductible. Do you have the cost basis at date of death or alternate valuation date?

inherited property is automatically considered investment property as long as the bene didn't live in the house, losses are allowed even if the home was the parents personal residence. up keep to the home is can be added to basis in some circumstances.

[Yardley CPA]

Does it change the reporting if one of the homes was in a living trust?

[mcb39]

It shouldn't, because the living trust automatically steps up the basis at time of death; as well as ownership; without having to go through probate. I'm sure that if I am wrong, someone is going to step in and correct my answer.

[Yardley CPA]

Thanks again to everyone who chimed in.