Elizabeth,
When you inherit a home and sell it, you may have to pay taxes on any gain you made on the property. To calculate gain, find out your Basis (see next paragraph) in the property. Normally this would be the amount you paid for the property, but since you inherited it, your basis typically is the fair market value (FMV) of the property the day the person died.
Basis:
FMV at time of your mother’s death
Plus Add the cost of any improvements you made to the basis. If you made any improvements on the property before you sold it, those costs also become part of the basis. Any fees or other expenses involved in the sale of the property, such as realtor commissions, also become part of your basis in the property.
- For example, if you inherited a house and repainted it and put in new flooring, new kitchen, new roof, etc., before you sold it, you could add these costs to your inherited basis in the property.
Compare the sale price of the property to your costs. Generally, if you sold the property for more than your basis in the property, you have capital gains. If you sold the property for less than your basis in the property, you have capital losses
So in your case
Selling price $200,000 less sales commisions
Minus: FMV $167,000 Plus any major improvements explained above.
Capital losses are only deductible to the extent of any capital gains you have, such as from the sale of investments, real estate, or other investment property. If you don't have any capital gains, you don't have to report capital losses on your taxes.
Capital gains do have to be reported and are potentially taxable depending on your filing status and other income or losses throughout the year.
NOTE: If the home has been used as a main home for two years out of the prior five years before the sale, then there is Home sale tax exclusion. If this was the case please let me know and I will provide further details on who qualifies and the amounts of the exclusion.
Victor Santucci EA
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