Taxation as it relates to Probate Trust and Estate sales.
- Michael Work
- 2 days ago
- 2 min read
Updated: 3 hours ago
There are many tax questions and concerns as it relates to the liquidation of inherited real estate. The following is taken from the IRS.gov website:
Question
Is money received from the sale of inherited property considered taxable income?
Answer
Generally, the gross proceeds from the sale of inherited property are included in gross income when considering the need to file. If there’s a filing requirement, report the sale on Schedule D (Form 1040), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets:
To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:
The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the Instructions for Form 706.
If you sell the property for more than your basis, you have a taxable gain.
For information on how to report the sale on Schedule D, see Publication 550, Investment Income and Expenses.
For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. In 2015, Congress passed a law that, in certain circumstances, requires the recipient’s basis in certain inherited property to be consistent with the value of the property as finally determined for Federal estate tax purposes. If you receive a Schedule A to Form 8971 from an executor of an estate or other person required to file an estate tax return, you may be required to report a basis consistent with the estate tax value of the property. For more information, see Publication 559, Survivors, Executors, and Administrators.
If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.
An accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for Federal estate tax purposes. See Notice 2016-27.
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