Selling Inheritance at a Loss

Today TaxMama hears from Liz in the TaxQuips Forum with this interesting situation. “My father’s cousin passed away and I inherited part of his home.  The executrix of the estate said that since the home sold for less than it was appraised for on the date of his death, we each may be able to take a capital loss on our tax returns.  Is this true and how would I do that?”

Dear Liz,

Generally, on the sale of a personal residence,  there is no deductible loss. However, since this is inherited, and it wasn’t your residence, that just might be correct

Be sure to get a copy of the appraisal.  You’ll need that for your records. Yes, when you file for this year, you will be able to use the losses.  

This is how you report it.  On Schedule D, report your share of the sales price in Part II, column (d). Show your share of the appraised value in column (e).  In the description, put “Inherited house – See attached.” Include a disclosure statement outlining the details of the inheritance. What it is, the date of death. A statement that there was an appraisal – and your share of the appraised value. Explain how you arrived at the cost – by showing the full sales price and your share of it.

 Some people might think this is excessive.  But this is simply an outline of the math backing up the numbers on Schedule D.  It never hurts to provide solid, reasonable information.  It reduces the chances of an audit, since all the details are there.

 If you file on paper, you can even include a copy of the primary page of the appraisal and the main page of the sales document or the letter from estate with your share of the distribution.

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

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