What the Sale of Inherited Property At a Loss Means for Taxes

The sale of inherited property at a loss will still have tax implications. Making money when selling an inherited property will mean that you will have to report the gains or profits. But the sale of inherited property at a loss can provide you with a tax deduction.

Regardless, determining your gain or loss on the sale of an inherited property depends on a number of factors, including when the decedent passed away and how the property was used by you.

Sale of Inherited Property at a Loss or Gain

For tax purposes, the sale of inherited property at a loss or gain is counted as either a capital loss or gain. Capital gains and losses apply to houses, stocks and other personal or investment purchases that realize a loss or gain when sold.

In most situations, one has to keep the property for at a year in order to qualify for lower capital gains rates. But when it comes to an inherited home, it does not matter how long you own it for: any loss or gain is treated as long-term.

This is important to understand if you are using the inherited property as your primary residence. By living in the property it becomes personal property. As a result, you cannot deduct a loss on the sale.

Understanding “the Basis”

When it comes to determining the basis for an inherited property, the different tax code rules apply when. In traditional terms, the “basis” of the home is the amount used to calculate the sale’s loss or gain. When buying a home, the basis is the amount you paid.

For example, if you sell a property for $350,000 and you paid $310,000, you would only have a taxable gain of $40,000. This points to the fact that the higher the basis, the lower your taxable gain from the sale.

Again, when selling an inherited property, determining the basis is a little more involved. To understand how this is calculated – especially with the sale of inherited property at a loss – it can be best to work with a tax professional.

Reporting the Sale of Inherited Property at a Loss or Gain

Selling an inherited property requires you to report the sale on your income taxes. Again, while it is recommended that you work with a tax professional, here is simplified overview of this process. You will want to first calculate your gain or loss by subtracting your basis from the number you received following the sale. From here, the sale is reported on IRS Schedule D (this is the form that is used for capital gains and losses). Lastly, once again record your loss or gain to your Form 1040.

Selling an inherited property can be a full time job that requires spending upfront on repairs and upgrades and then waiting to time up the market. However, if you are looking for a fast cash sale, we can help. Our team specializes in working with sellers of inherited property. Contact us today to see how we can offer you a cash deal for your inherited home.