How should I report money received from selling my inherited share of my late father's home? 1099-S form shows $70,000 - is this considered taxable income or inheritance?
Title: How should I report money received from selling my inherited share of my late father's home? 1099-S form shows $70,000 - is this considered taxable income or inheritance? 1 My dad recently passed away and his will left his house equally to me and my two brothers. The house was appraised at $210,000. One of my brothers had been living with dad for years and he wanted to keep the house, so he bought out my share and my other brother's share. I just got a 1099-S form in the mail showing I received $70,000 for my portion of the house (which makes sense since it's about 1/3 of the value). I'm really confused about how to handle this on my taxes. Is this $70,000 considered income that I need to pay taxes on? Or is it inheritance which I think might be treated differently? I've never dealt with inheritance or property sales before, and I don't want to mess this up and either overpay or get in trouble with the IRS. How exactly do I report this on my tax return?
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PrinceJoe
15 The good news is that inherited property receives what's called a "stepped-up basis" to the fair market value at the date of death. Since the home was valued at $210,000 when your father passed away, your basis in your 1/3 share would be about $70,000. The 1099-S you received shows the gross proceeds from the sale of your portion of the home. Since you sold your share for approximately the same amount as your stepped-up basis, you likely have little to no capital gain to report. You'll need to report this on Schedule D of your tax return and Form 8949. You'll list the sale, your basis (approximately $70,000), and calculate the difference (gain or loss). In your case, it sounds like the gain might be minimal or zero if you sold for exactly your basis amount. Inheritance itself isn't taxable income to you at the federal level, but the sale of inherited property can create a taxable capital gain if you sell for more than the stepped-up basis.
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PrinceJoe
•7 Thanks for the explanation! I'm still a bit confused though. Do I need to get some kind of documentation about the "stepped-up basis" value? The appraisal was informal - my brother just had a real estate agent friend give an estimate. Will the IRS accept that or do I need something more official?
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PrinceJoe
•15 It's always good to have documentation supporting your basis. While an informal appraisal might be sufficient, getting a more formal written appraisal from a licensed appraiser would provide better support if you're ever questioned by the IRS. Some people also use county tax assessments or comparable sales in the area from around the time of death. For the actual tax filing, you'll use Form 8949 to report the sale, listing your $70,000 proceeds from the 1099-S and your $70,000 basis. This would result in zero gain. Then transfer this information to Schedule D. Be sure to indicate that the property was inherited by checking the appropriate box for property acquired from a decedent.
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PrinceJoe
8 I went through something similar last year with my mom's house and was totally lost with the tax implications. I ended up using this AI tax assistant called taxr.ai that really helped me understand everything. You just upload your documents (like your 1099-S form) and it explains exactly what they mean and how to report them. The site https://taxr.ai actually walked me through how inheritance basis works and explained the whole "stepped-up basis" thing in simple terms. It even helped me identify some expenses related to the property sale that I could use to reduce any potential gain. Saved me a ton of stress trying to figure it all out on my own.
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PrinceJoe
•12 How does the document upload work? I'm always nervous about uploading financial docs to websites I'm not familiar with. Does it actually give you advice or just general information?
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PrinceJoe
•20 Does it work for complicated situations? My inheritance situation involves property in two different states and a partial business interest. Would this handle something that complex or is it more for straightforward cases?
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PrinceJoe
•8 The document upload is secure and they explain that they use encryption to protect your information. After uploading, it actually analyzes your specific documents and gives personalized advice based on what it sees - not just generic info. In my case, it identified specific lines on my 1099-S and explained exactly how they should be reported. It absolutely handles complex situations. The system is designed to work with complicated tax scenarios - multi-state property, business interests, mixed inheritance types, and more. I was surprised by how detailed it got with my situation, which also involved some rental income from the inherited property before we sold it.
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PrinceJoe
12 Just wanted to follow up and say I tried taxr.ai after asking about it here. It was incredibly helpful! I uploaded my 1099-S and the system immediately explained how inheritance basis works for my situation. It even created a custom report showing exactly where to report everything on my tax forms. The explanation about stepped-up basis made so much more sense than what I found through googling. It helped me understand that I needed to document the property's value at the time of inheritance, not just rely on the sale price. Definitely recommend it if you're dealing with inheritance tax questions!
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PrinceJoe
6 If you need to talk to the IRS about this situation (which I had to do with a similar inheritance issue), try using Claimyr. The regular IRS phone line is absolutely impossible - I tried calling for weeks and could never get through. I used https://claimyr.com and they got me connected to an IRS agent in about 15 minutes when I'd been trying for days on my own. There's a video showing how it works: https://youtu.be/_kiP6q8DX5c I had a lot of questions about how to document the property valuation at death since our appraisal was also informal, and I actually got clear answers directly from the IRS instead of guessing or relying on internet advice. The agent walked me through exactly what forms to file.
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PrinceJoe
•18 Wait, how does this actually work? Are they somehow skipping the IRS hold line? That seems impossible given how backed up the IRS phone systems are.
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PrinceJoe
•20 This sounds too good to be true. I've spent literal hours on hold with the IRS multiple times. If this works, it would be amazing, but I'm skeptical that any service could actually get through when the official channels are so backed up.
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PrinceJoe
•6 It's not about skipping the line - they use technology that automatically waits on hold for you. The system calls the IRS and navigates the phone tree, then when an actual agent picks up, you get a call connecting you directly to them. You don't have to sit listening to hold music for hours. It absolutely works - I was skeptical too! The reason it works is they're not doing anything magical, they're just using technology to handle the waiting part. Think of it like having someone else wait in a physical line for you, then texting you when it's your turn. When I needed to follow up with the IRS again, I used it a second time and got through in about 40 minutes during a really busy time.
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PrinceJoe
20 I have to admit I was completely wrong about Claimyr! After posting my skeptical comment, I decided to give it a try since I needed to ask the IRS about some inheritance tax issues that were similar to yours. It actually worked exactly as described - I put in my number, and about 30 minutes later I got a call connecting me directly to an IRS representative. No waiting on hold, no frustration with dropped calls. The agent I spoke with gave me detailed guidance on documenting property valuation for inherited assets and confirmed I was handling the 1099-S correctly. Honestly wish I had known about this months ago when I was trying to get answers about my inheritance tax questions. Would have saved me so much stress!
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PrinceJoe
10 Just want to add that an important detail is when your father passed away. If it was recent (within a year or so), then what others said about stepped-up basis is correct. But if it's been a long time since he passed and the house appreciated in value while you technically owned your share, you might owe some capital gains on the difference. For example, if he passed 5 years ago when the house was worth $180k (your share $60k) and now you sold your share for $70k, you'd owe capital gains on that $10k difference.
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PrinceJoe
•3 Does it matter if the house was going through probate during that time? My situation is similar but the property was in probate for 2 years before we got the inheritance officially. Would the stepped-up basis be from date of death or date when probate closed?
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PrinceJoe
•10 The stepped-up basis is almost always determined as of the date of death, regardless of when probate closes. So if your relative died 2 years ago, but probate just finished recently, the property's value for calculating your basis would still be what it was worth 2 years ago at the date of death. This can work in your favor or against you depending on the housing market in your area during that time. If property values went up during probate, you might owe taxes on that increase. If they went down, you might actually have a deductible loss.
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PrinceJoe
5 Did your brother get a mortgage to buy you out or did he pay cash? Just wondering because when I went through this with my family, my sister needed a mortgage and the bank required a formal appraisal, which then really helped with documenting the stepped-up basis for tax purposes.
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PrinceJoe
•14 Not OP but when we had a similar situation, getting that bank appraisal was super helpful for our taxes. The IRS never questioned anything because we had the official appraisal document. If your brother didn't get a mortgage, it might be worth splitting the cost of a formal appraisal between all siblings just for documentation.
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