Can I claim a tax loss when selling an inherited home for less than the appraised value?

Yes, you can potentially claim this as a loss, but there are some specific rules to follow. With an inherited property, you receive what's called a "stepped-up basis" equal to the fair market value at the date of death, which in your case was the $850k appraisal. Since you sold for less than that basis (after accounting for selling expenses), you do have a capital loss of $55k. This would be reported on Schedule D as a capital loss. However, there's an important distinction - this would be considered a capital loss, not a personal loss. Personal residence losses typically aren't deductible, but since this was an inherited property you weren't using as your primary residence, the capital loss rules apply. You can use capital losses to offset capital gains, and if your losses exceed your gains, you can deduct up to $3,000 against ordinary income per year, with any remainder carried forward to future tax years.

I went through something very similar with my grandparents' home last year and was completely lost with all the paperwork and tax implications. I ended up using this service called taxr.ai (https://taxr.ai) that really saved me a lot of headaches. They have this feature where you can upload your appraisal documents, closing statements, and inheritance paperwork, and their system analyzes everything to determine your proper tax basis and potential losses or gains. It caught several deductible expenses related to the sale that I would have missed on my own, which increased my deductible loss by about $8k. They also provided a detailed report that I could give to my tax preparer explaining all the calculations.

Just wanted to follow up about my experience with taxr.ai after seeing it recommended here. I decided to try it with my complicated inherited property situation (the one with two different appraisals). It was actually really straightforward - uploaded all my documents including both appraisals, the executor paperwork, and my closing statement. Their analysis showed I could legitimately use the higher of the two appraisals (the estate one) as my stepped-up basis since it was properly done at the date of death. They provided documentation explaining exactly why this was the correct approach according to IRS rules. This increased my capital loss by about $23k compared to what I thought I could claim! They even flagged several selling expenses I didn't realize were deductible against the sales price. The report they generated laid everything out clearly for my tax filing. Definitely worth it for these complicated inheritance situations.

When I had a similar situation last year with my father's home, the most frustrating part was trying to get someone at the IRS to confirm how I should report everything. I spent literally WEEKS trying to get through on their phone lines with no luck. I finally discovered a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in less than an hour. You can see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how to report my inherited home sale loss and which forms I needed to complete. Saved me so much anxiety about doing it wrong and potentially getting hit with penalties. They basically hold your place in the IRS phone queue so you don't have to listen to the hold music for hours.

I need to eat crow and follow up on my skeptical comment about Claimyr. After struggling for another week trying to reach the IRS about my inherited property basis questions, I decided to try the service I was so quick to dismiss. To my genuine surprise, it actually worked exactly as described. I got a text about 30 minutes after signing up saying they'd secured a place in line, and then got connected to an IRS representative shortly after. The agent walked me through exactly how to report my situation with the inherited property loss on Schedule D and confirmed I was eligible to claim the full capital loss (minus the $3,000 annual limit against ordinary income). The time saved was worth every penny compared to the days I wasted trying to get through on my own. Sometimes it pays to be proven wrong!

Something to consider - make sure you have proper documentation of all the expenses that reduced your net proceeds. The IRS is picky about substantiating these costs if you get audited. Keep records of all: - Real estate commissions - Legal fees related to the sale - Transfer taxes and stamps - Any repairs or improvements you made to get the property ready for sale - Advertising costs - Home staging expenses I sold my uncle's inherited property last year and the IRS questioned some of my expenses because I didn't have proper receipts. Don't make my mistake!

Has anyone used TurboTax to report this kind of loss? I'm wondering if the regular version can handle this or if I need to upgrade to Premier or something for capital losses from inherited property sales.

One thing I'd add to all the great advice here - if you're dealing with an inherited property loss, consider whether you might have any other capital gains this year that could offset the loss. I inherited my grandmother's house and sold it at a $40k loss, but I also had some stock gains from earlier in the year. The capital loss from the house sale completely offset those gains, saving me a significant amount in taxes. Also, if your loss is larger than what you can use this year (after offsetting gains and taking the $3k against ordinary income), remember that unused capital losses carry forward indefinitely. So even if you can't use the full $55k this year, you can keep applying $3k per year against ordinary income until it's used up, or use it to offset future capital gains. Make sure to keep detailed records of how much loss you've used each year so you can track your remaining carryforward balance. The IRS doesn't send you reminders about this!

Great question! I dealt with a very similar situation when I inherited my aunt's property last year. The key thing to understand is that your stepped-up basis is indeed the $850k appraised value at the date of death, so you absolutely can claim that $55k as a capital loss. One important detail to double-check: make sure you're including ALL allowable selling expenses when calculating your loss. Beyond the obvious ones like realtor commissions and closing costs, you might also be able to deduct things like title insurance, escrow fees, any inspection costs you paid for, and even some of the minor repairs if they were specifically done to facilitate the sale. I'd recommend getting a copy of IRS Publication 544 (Sales and Other Dispositions of Assets) - it has a section specifically about inherited property that's really helpful. The loss gets reported on Form 8949 first, then carries over to Schedule D. Also worth noting: if this is your first time dealing with inherited property taxes, consider having a tax professional review everything before you file. The rules can be tricky, and you want to make sure you're maximizing your allowable deductions while staying compliant.