Q:

Subject:  Gain on Inherited Property

How do I record my gain on inherited property?

I inherited property in 1982 when my husband died. I am considered 1/12 owner and received 1/12 of the proceeds when the house sold in 2008. If the house was assessed at $60,000 in 1982, then is my cost basis $5,000 (1/2 of $60,000). In addition, do I reduce my proceeds by the settlement charges I paid at closing. Finally, does this get reported on Schedule D?

A:

You really need to be working with a professional tax advisor on this because there are many factors that need to be considered.

Some of the issues that you will need to discuss with your own personal professional tax advisor so that s/he will know how to properly report the sale include the following.

For the basis of the property, it is important to know if it was owned as separate property by your late husband or jointly by both of you. The amount of the step-up in basis will also depend on whether or not you were in a community property state or not if it was jointly owned.

Any improvements to the property that you paid for will be added to the basis.

You didn't say what kind of property it was and what it was used for. If it had been used for rental or other business purposes, any depreciation claimed or claimable will reduce the basis and trigger depreciation recapture at a higher rate than the other profit.  It will also require reporting the sale on Form 4797, which will then flow onto Schedule D.

I assume you received the full amount of your share of the proceeds; but if you are receiving periodic payments, it will probably need to be reported as an installment sale on Form 6252, with any interest received reported on Schedule B.

If you had been living in the property as your primary personal residence, you would most likely be eligible to exclude up to $250,000 of profit.

These are all important items to clear up with your own personal professional tax preparer who will then now how to show the sale on your 1040.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/27/2009 12:13:00 PM Send this post: