How to report inheritance of house with sibling on taxes - handling 1099-S and split proceeds

Since you inherited the property, your basis in the home is the fair market value at the date of death (or alternate valuation date if the estate chose that option). This is called a "stepped-up basis" and it's very important for calculating your gain or loss. You'll need to report this sale on Form 8949 and then carry the information to Schedule D. Since you only owned 50% of the property, you should only report 50% of the amounts on your personal return - so half of the gross proceeds from the 1099-S. Your brother will report the other half on his return. As for the selling expenses like realtor commissions and closing costs, these reduce your gain. You'll report the gross amount from the 1099-S on Form 8949, but then you can subtract your basis (50% of the stepped-up value) and your share of the selling expenses to determine your actual gain or loss.

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Something to watch out for - make sure you're tracking the holding period correctly! Since you inherited the property, your holding period is automatically considered long-term regardless of how long you actually owned it before selling. This can make a big difference in the tax rate applied to any gains. Also, don't forget to check if your state has different rules for inherited property. Some states don't follow the federal stepped-up basis rules, which can create a real headache if you're not careful!

One thing I learned the hard way - keep really good records of all the expenses related to the property between inheritance and sale! We paid property taxes, insurance, some repairs, and utilities while the house was on the market. These costs can often be deducted from your proceeds when calculating your gain. Our sale was last year, and I'm STILL trying to track down all these expenses because I didn't keep good records. 🤦‍♀️ Don't be like me!

Great question! Yes, HOA fees paid between inheritance and sale are typically deductible as selling expenses. These are considered costs of maintaining the property while it's being marketed for sale. Keep all your HOA payment receipts and any other maintenance costs like utilities, insurance, property taxes, and repairs during the holding period. Just make sure to only deduct your 50% share of these expenses (matching your ownership percentage) when you report everything on Form 8949. Your brother should deduct his 50% share on his return. Also, since this is a condo, don't forget to check if there were any special assessments during that time period - those would also be deductible if you paid them while preparing the property for sale.