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Old 02-24-2011, 04:03 PM
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Inheritance of real Property

My mother died in CA on July 6, 2010. Me and my two sisters inherited her only asset, her house, which was in a trust and was not required to go through probate. I am a resident of FL with no personal income tax. My sisters are residents of CALIF. We sold the house for $265K in Jan 2011. This is pretty close to the fair market stepped value on the date of her death. The 3 of us realized sale proceeds of about $170 ($57K each) on Jan 19, 2011after two liens to Medi-Cal and LA County redevelopment agency were repaid. Other items including agent commissions that were paid from the sale proceeds were detailed on the Final HUD-1 form. No 1099-S was issued.

How do I report this on my 2011 form 1040? I have heard it is reported as a long-term capital gain since it is inherited property on Schedule D, but information is scant on how to prepare the form. Plus the instructions for Schedule D refer you to IRS Publication 4895, if the death occurred after 2009. That publication has not yet been published by the IRS.

Any help you can give me in this regard would be very enlightening



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Old 02-24-2011, 09:35 PM
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“ No 1099-S was issued.”----> There should not be a 1099-S for 2010
“How do I report this on my 2011 form 1040?”----> You are taxed when you liquidate inherited property. Under Internal Revenue Code Section 1014, the tax basis (cost to determine gain or loss for income tax reporting) of inherited property is adjusted to the fair market value on the date of death or the alternate valuation date, if applicableYou must report the sale on schedule D of Form 1040 line 13( you need to attach Sch D.). Profit from an inherited property is always a long term capital regardless of when you inherited it. Long term capital gain tax rate for 2010 was 0%( if your personal tax brackets were etiher 10% or 15%) or 15% ( if your marginal tax rate was over 15%)n in 2010.
See the table here; Capital gains tax in the United States - Wikipedia, the free encyclopedia
“I have heard it is reported as a long-term capital gain since it is inherited property on Schedule D”----> Correct; the basis for inherited property is generally the fair market value of the property at the date of the decedent's death, regardless of when you acquire the property. The acquisition date is the date of death, but the property is deemed to be held more than one year, qualifying for long-term capital gain or loss.
Please visit the IRS website; Publication 559 (2009), Survivors, Executors, and Administrators
“but information is scant on how to prepare the form. Plus the instructions for Schedule D refer you to IRS Publication 4895, if the death occurred after 2009. That publication has not yet been published by the IRS.”---->I guess you need to complete the part2 & 3 of Sch D and Qualified Dividends and Capital Gain Tax Worksheet in the Instructions for Form 1040 page 37 and repot the number, LTCG Tax, on 1040 line 44.
Please visit the IRS website here; http://www.irs.gov/pub/irs-pdf/i1040.pdf



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