Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

CG on sale of Inherited Real estate

Rick1725
Level 2

My client inherited outright his mother's home when she passed away in Jan 2019.

He had lived in the home for years with his mother.

He sold the house($550K) several months after her death for $20,000 less than the Market Analysis ($570K). He had closing costs of $32,909.

Can he claim a deductible LT cap loss? If so, how much?

Thank you.

 

 

 

Labels (1)
0 Cheers
6 Replies 6
Terry53029
Level 11
Level 11
BobKamman
Level 14

The devil is in the details.  Probably not a deductible loss, but we don't have enough information.

He had lived in the home for years with his mother.  Up until her death?  Or, maybe 1995-2014?

He sold the house($550K) several months after her death and continued to live there until the deal closed, or maybe he really didn't like the place, just lived there to take care of her, moved out and bought a place of his own  as soon as she died?

0 Cheers
linette
Level 5

You should research this on your own and come to your own conclusions.

The monkey wrench here is trying to make this his personal residence.

Was it or wasn't it?  The consequences may be different depending on that answer.

Also, inherited property has step up in basis if property is held correctly and transfers at date of death.  Investment property can have losses but they are capital losses except....

Where we know what to do with this stuff, relying on answers here may lead you astray.  You have to be careful to ask all the questions of the taxpayer before you file.   Researching and coming to your own conclusions will help you formulate questions to ask.  

0 Cheers
Rick1725
Level 2

You should research this on your own and come to your own conclusions.

Thank you. I appreciate your response and agree with your advice.

The monkey wrench here is trying to make this his personal residence.

He is NOT trying to "make it his personal residence". He is not eligible for the $250K exclusion. He did live in the house with his mother for several years. She was the sole owner. He legally inherited the house and is entitled to step up in basis. 

Was it or wasn't it?  The consequences may be different depending on that answer.

Also, inherited property has step up in basis if property is held correctly and transfers at date of death.  Investment property can have losses but they are capital losses except....

He is a simple man and could not maintain the house himself after she died. Within months he sold the house for close to the asking price (FMV appraised). The question is: can he deduct his capital loss (basically the closing costs)?

Where we know what to do with this stuff, relying on answers here may lead you astray.  You have to be careful to ask all the questions of the taxpayer before you file.   Researching and coming to your own conclusions will help you formulate questions to ask.  Thank you.

0 Cheers
BobKamman
Level 14

It's still not clear if he was living in the house when she died, and if he was living there until he had to move out because it was sold.  The "primary residence" rules don't apply the question is whether the "personal use" rules do.  If you sell something at a loss that was held for personal use, there is no deduction.  

Was he living in the house because he was taking care of his mother, or was he living there because she was taking care of him?  Or does it really matter -- maybe we should only look at what happened after her death.  The bottom line is that you have an interesting question.   

0 Cheers
linette
Level 5

I think you can have a capital loss here.

But not enough information in original post and definitely an area that you want to be sure of the situation.  

For example:  maybe he was living in the house in exchange for caregiving services.   How should that be reported?

I don't think he has personal use of something that he doesn't own when he is using it.  However, stranger things are written.  I would look to see if I can find an exception or something that maybe says I am not thinking correctly.

Is he really using it?  Many times a caregiver is required to live on premise.  

It is a very interesting question that you pose and without knowing the taxpayer I think as professionals we can come up with differing answers based on how simple or complex we view this.  I think all we can do here is keep you thinking about things till you figure out what you think is right.