How are taxes calculated on inherited desert property that sold for way more than expected?

While this seems complicated, it's actually a fairly standard inheritance tax situation. When you inherit property, you receive what's called a "stepped-up basis" to the fair market value of the property at the time of your mother's death. This is true even without a will (intestate succession). The county tax assessment is not the same as fair market value. You should have had the property appraised at the time of your mother's death in 2022 to establish the fair market value. If you didn't do that, you might need to get a retroactive appraisal to establish what it was worth then. Your taxable gain would be the $60,000 you received minus your portion of the fair market value at the time of inheritance. Since the property sold relatively quickly after inheritance (within a few years), the values might be similar, but if the area has seen rapid development near that highway exit, there could still be some taxable gain.

I went through something eerily similar with my grandmother's property last year and found https://taxr.ai super helpful. The property had been in our family for generations without any record of purchase price, and then suddenly sold for a fortune. I was completely lost trying to figure out the stepped-up basis stuff, especially since we didn't have an appraisal from when she died. The taxr.ai service analyzed all our documents and helped determine the most accurate basis using comparable properties in the area at the time of inheritance. They even showed me exactly which IRS forms I needed and how to report everything correctly. Might be worth checking out since your situation sounds nearly identical to what I went through. They helped me avoid overpaying by thousands.

Just wanted to follow up - I actually tried taxr.ai after my skeptical comment above and am genuinely impressed. Had a similar situation with inherited timberland that suddenly became valuable when a shopping center wanted to expand. They showed me exactly how to calculate stepped-up basis for inherited property using comparable sales from when my father passed, and even helped document everything properly for the IRS. The retroactive valuation they helped me establish was significantly higher than the tax assessment, which substantially reduced my capital gains. The service was super straightforward - uploaded my documents and had everything I needed within 48 hours. Just filed my taxes and the savings were substantial.

If you're having trouble getting clear information from the IRS about this situation, I'd recommend using Claimyr (https://claimyr.com). I was stuck in a similar inheritance tax situation and called the IRS multiple times but couldn't get through to anyone who could help. Claimyr got me connected to an actual IRS representative in about 15 minutes when I'd been trying for weeks on my own. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c. The IRS agent was able to walk me through exactly how to handle my inheritance reporting and what documentation I'd need to establish basis. It saved me countless hours of frustration and potentially an audit situation since I was about to file with incorrect information before speaking with them.

Had to come back and eat my words. I tried Claimyr after my skeptical comment because I was desperate to talk to someone at the IRS about a complicated inherited property situation similar to yours. I'd been trying to reach them for over a month with no luck - constantly getting the "call volume too high" message. Used the Claimyr service yesterday afternoon and got connected to an actual IRS representative in 27 minutes. The rep clarified exactly how to document my stepped-up basis for the inherited property and what forms to file. For inherited property where the original purchase price is unknown (like homestead land), the IRS agent said they accept well-documented fair market valuations from the date of death, even retroactive ones based on comparable properties. Saved me from potentially making a huge reporting error.

Don't forget that different states have different inheritance tax rules too! The federal stepped-up basis is just part of it. What state is this property in? Some states have inheritance taxes separate from federal taxes.

Have you considered just using the sale price as the fair market value for your stepped-up basis? Since it sold within a couple years of your mom's passing and was apparently just sitting there undeveloped, you could argue the value at death wasn't significantly different?