Can I use Section 121 exclusion on inherited property from an intestate estate?

Yes, you can potentially use the Section 121 exclusion on inherited property, but there are specific requirements you need to meet. The key is that you must own AND use the property as your principal residence for at least 2 years out of the 5 years before the sale. When you inherit property, you generally receive a "stepped-up basis" to the fair market value of the property at the date of death. This is beneficial because it minimizes the capital gain when you sell. For intestate succession in New York, you're correct that legal title passes to heirs upon death, so your ownership period would typically begin at the date of death. If you've lived in the property for 2 years as your primary residence since inheriting it, and you're selling within 5 years of the date of death, you should qualify for the Section 121 exclusion, which allows you to exclude up to $250,000 of gain ($500,000 if married filing jointly).

After struggling with almost this exact situation last year, I found an amazing service that cleared everything up for me. I inherited a house in an intestate situation and was confused about Section 121 exclusions and when my ownership period actually started. I tried asking accountants and got different answers until I discovered https://taxr.ai - they analyzed all my documents and clarified exactly how the IRS would view my situation. The tool showed me that I did qualify for Section 121 since I had lived in the home for more than 2 years after inheriting it. They even helped me understand how the stepped-up basis worked in my situation, which saved me thousands. I highly recommend checking them out if you're dealing with inherited property and tax questions.

I want to follow up about my experience with taxr.ai. After my skeptical comment, I decided to try the service since my situation with inherited property was getting complicated. I uploaded the death certificate, property deed, and some other documents related to the intestate process. The analysis I got back was incredibly detailed! They showed me exactly how Section 121 would apply in my case and pointed me to specific IRS publications that covered my situation. What impressed me most was how they explained the timing of ownership - they cited specific legal precedents showing that for Section 121 purposes, my ownership began at date of death, not when probate concluded. This was crucial because it gave me the full exclusion amount. If you're dealing with inherited property tax questions, especially Section 121 issues, I'd definitely recommend them. Saved me hours of research and probably thousands in taxes.

Has anyone tried calling the IRS directly about Section 121 for inherited property? I was in a similar situation last year and spent WEEKS trying to get through to someone who could give me a clear answer. After 8 failed attempts and hours on hold, I found https://claimyr.com which got me connected to an IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that for intestate situations, they generally consider ownership to begin at date of death, not when probate finalizes. She also explained exactly how the Section 121 exclusion works with inherited property and stepped-up basis. Honestly changed my whole understanding of how to report the sale on my taxes.

I need to publicly eat my words about Claimyr. After calling the IRS unsuccessfully for THREE DAYS (literally hours on hold before getting disconnected), I was desperate enough to try it. I figured I'd be wasting my money, but within 38 minutes, my phone rang and I was talking to an actual IRS agent. The agent confirmed everything I needed to know about Section 121 for my inherited property situation. She explained that for intestate succession, my ownership period for Section 121 purposes began on the date of death, and that I could indeed claim the exclusion since I had used it as my primary residence for the required period. She even sent me specific IRS documentation about inherited property and capital gains exclusions. I'm honestly shocked this service worked. Saved me days of frustration and helped me confirm I was handling my tax situation correctly.

My tax advisor told me that the stepped-up basis is usually more valuable than Section 121 for inherited property anyway. When you inherit real estate, your basis becomes the fair market value at date of death, so you might not have much gain to exclude with Section 121 unless the property has appreciated significantly since you inherited it.

Don't forget to check if your state handles inherited property the same way the IRS does! NY generally follows federal rules, but some states have their own twists on capital gains for inherited property. Just something to double-check.

This is a great question about Section 121 and inherited property! I went through something similar when I inherited my grandmother's house through intestate succession in Pennsylvania. One thing I learned that might be helpful - you should also consider getting a professional appraisal for the property's value at the date of death if you don't already have one. This establishes your stepped-up basis officially and can be crucial if the IRS ever questions your capital gains calculation. In my case, I had lived in the inherited house for 3 years before selling, so I easily qualified for Section 121. But even if I hadn't, the stepped-up basis meant my actual capital gain was much smaller than it would have been if I had purchased the property myself years ago. Also, make sure to keep detailed records of when you moved in and made it your primary residence. The IRS can be pretty strict about proving the 2-year residency requirement, so having utility bills, voter registration changes, and other documentation showing it was your principal residence will be important if you're ever audited.