Today TaxMama hears from Dottie in Massachusetts with this question. “Does the maximum personal residence exclusion apply to someone who inherited a home, had it for 370 days, sold it for a long-term capital gain and received a K-1?
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He and his dad had lived in the home for 10 yrs previously.”
Dear Dottie,
First of all, you don’t receive a K-1 when you sell a home. Possibly, the escrow company sends you a 1099.
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If you are receiving a K-1, that means there’s an estate. The estate sold the home, not the heir. If that’s the case, the tax professional handling the estate should have provided enough information for the heir to be able to file a tax return. If they didn’t, ask them for the details.
Secondly, when someone dies, there is a step-up in the basis of the home. What does that mean? The tax cost of the home becomes the current fair market value. (See Alannah Kern’s comments to yesterday’s TaxQuip – https://www.taxquips.com/index.php?id=1394 )
When you sell the house within a year or so of the death, especially in the current real estate market, odds are that there will be no gain. Even when the value has risen a bit since the death, you will find that commissions and selling costs will eat up that profit.
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Take this year’s tax return and information to a tax professional. I suspect there will be no tax due at all. Once they see the information the tax pros will know what else to ask you to clarify the whole transaction.
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And remember, you can find answers to all kinds of questions about death-related tax matters and other tax issues, free. Where? Where else? At TaxMama.com.
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- TaxQuip #1394 :: See Alannah Kern’s comments
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