Is money from selling inherited property considered income or inheritance? How to report on taxes with 1099-S?
Title: Is money from selling inherited property considered income or inheritance? How to report on taxes with 1099-S? 1 My mom recently passed away (last October) and left her house to me and my two brothers. My younger brother was living with her for the past few years and decided he wanted to keep the place, so he bought out me and my older brother's shares. The house was appraised at around $280,000 total. Last month I got a 1099-S form in the mail showing I received $93,500 (my portion of the home value). I'm trying to figure out how to handle this on my taxes. Is this considered taxable income? Or is it inheritance? I've never dealt with inherited property before, and I'm not sure if I need to report this amount since it's from selling my portion of an inheritance. The 1099-S makes me think it's reportable somehow, but I don't know if I owe taxes on it or how to list it on my return. Any advice would be appreciated!
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Fatima Al-Suwaidi
14 This is a common situation with inherited property. When you inherit property, you receive a "stepped-up basis" to the fair market value at the date of death. This means your basis in your share of the house was approximately $93,500 (your portion of the $280,000 value). Since you sold your share for $93,500 (the same as your basis), you likely don't have any gain to report. However, you still need to report the transaction on your tax return since you received a 1099-S. You'll need to complete Schedule D and Form 8949 to report the sale, listing your proceeds as $93,500 and your basis as $93,500, resulting in zero gain. The good news is that this isn't considered income - it's the sale of an inherited asset where the proceeds equal your basis, so there's no taxable gain. It's not technically "inheritance" either at this point - the inheritance was your share of the house, and you're now reporting the sale of that asset.
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Fatima Al-Suwaidi
•7 Thanks for the explanation! How do I figure out if the basis is exactly $93,500 though? The house was appraised when she died, but my brother didn't buy us out until about 6 months later. Does that matter? Also, do I need any special documentation besides the 1099-S?
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Fatima Al-Suwaidi
•14 Your basis would be the fair market value of your portion at the date of your mother's death. Ideally, you should use an appraisal from around that time. The 6-month delay in the buyout shouldn't matter unless there was a significant change in the property's value during that period. For documentation, keep copies of the appraisal, the 1099-S, and any legal documents showing the transfer of ownership and the buyout agreement. You don't need to submit these with your return, but you should keep them in your records in case of any questions from the IRS.
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Fatima Al-Suwaidi
12 After going through something similar last year, I discovered taxr.ai and it was incredibly helpful for my situation. I inherited my uncle's rental property along with my cousins, and we ended up selling it, which created a much more complicated tax situation than I expected. The 1099-S form really confused me, and I wasn't sure how to report everything correctly. I uploaded all my documents to https://taxr.ai and they analyzed everything, including the inheritance paperwork and the 1099-S. They explained exactly what was taxable and what wasn't, and gave me clear instructions on how to report it properly. Their system clearly showed me how the stepped-up basis worked and saved me from overpaying on taxes I didn't actually owe.
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Fatima Al-Suwaidi
•9 Does it work with other inheritance situations too? My grandma left me some stocks and I have no idea how to handle the basis for those when I eventually sell them.
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Fatima Al-Suwaidi
•17 I'm curious - how accurate was it? I've tried other tax tools before and they sometimes miss nuances with inheritance. Like what if the property appreciated between death and sale? Did it catch that kind of detail?
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Fatima Al-Suwaidi
•12 Yes, it absolutely works with stocks and other inherited assets too. The stepped-up basis rules apply to most inherited property, including stocks. The service helped me understand that the basis for inherited stocks would be the fair market value on the date of death, not what your grandma originally paid for them. The accuracy was impressive - it actually did account for appreciation between death and sale. In my case, there was about a 4% increase in property value from when my uncle died to when we sold it, and the system correctly identified that only that small increase was taxable, not the entire amount. It caught details I would have missed completely.
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Fatima Al-Suwaidi
17 Just wanted to follow up - I decided to try taxr.ai after seeing this thread. Had a similar inheritance situation with my father's assets, including partial property ownership and some stocks. I was completely lost with the 1099 forms and potential capital gains. The system analyzed everything and created a really clear breakdown of what was taxable and what wasn't. Turns out I was about to massively overpay by reporting the entire proceeds as taxable! It identified exactly how to document the stepped-up basis for everything and showed me exactly which forms to use. Saved me thousands in taxes I didn't actually owe. Definitely worth checking out if you're dealing with inheritance tax questions.
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Fatima Al-Suwaidi
5 If you're still having trouble after trying to figure it out yourself, I'd recommend using Claimyr to actually speak with someone at the IRS. I had a similar inheritance situation last year and spent WEEKS trying to call the IRS directly with no luck. I tried https://claimyr.com after seeing their demo video at https://youtu.be/_kiP6q8DX5c and they got me connected to an IRS agent in about 20 minutes when I had been trying for days on my own. The agent walked me through exactly how to report my inherited property sale and confirmed I didn't owe any taxes since my basis matched what I received.
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Fatima Al-Suwaidi
•18 Wait, how does this actually work? They somehow get you through the IRS phone tree faster? Seems too good to be true considering how impossible it is to reach an actual person there.
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Fatima Al-Suwaidi
•3 Yeah right. I've tried everything to get through to the IRS and nothing works. They're completely unreachable. I'm supposed to believe this magically gets you through? What's the catch here?
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Fatima Al-Suwaidi
•5 It works by automating the calling process. They have a system that navigates the IRS phone tree and waits on hold for you, then calls you when they've reached an agent. So instead of you spending hours on hold, their system does it for you. There's no magic - it's just technology handling the frustrating part. The catch is that they can't guarantee how quickly you'll get through since that depends on IRS call volume, but in my experience it was way faster than trying myself. I spoke with an actual IRS agent who answered my specific questions about reporting inherited property sales, which saved me a lot of uncertainty.
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Fatima Al-Suwaidi
3 I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was desperate enough to try it anyway because I kept getting disconnected every time I called the IRS myself. It actually worked! Their system called me back after about 35 minutes and connected me to a real IRS agent. I explained my situation with inherited property and the 1099-S form, and the agent confirmed exactly what others here said - that I only needed to pay tax on any appreciation since the date of death, not on the entire amount. They also explained exactly which forms to file. Honestly saved me hours of frustration and possibly an incorrect tax filing. Sometimes it's worth admitting when you're wrong about something.
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Fatima Al-Suwaidi
22 One thing to be aware of that nobody mentioned yet - if your brother was living in the house and continued to live there after your mom passed away, but before he bought you out, there might be questions about fair rental value during that period. This can sometimes complicate inheritance situations.
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Fatima Al-Suwaidi
•1 That's a good point I hadn't considered. My brother did continue living there those 6 months before buying us out. We didn't charge him rent since we were figuring out the estate. Would that create any tax issues? The executor (my older brother) just had him pay the utilities during that time.
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Fatima Al-Suwaidi
•22 In most cases, this wouldn't create significant tax issues for you as the person selling your share. The rental value question typically affects the person living in the property (your brother) or possibly the estate during administration. Since this was a relatively short period (6 months) and you were in the process of settling the estate, the IRS is unlikely to be concerned about the lack of rental payments. The main focus for your tax reporting remains the sale of your inheritance share and ensuring you correctly report the basis as the fair market value at the date of death.
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Fatima Al-Suwaidi
8 Do you need to use a special tax software to report this correctly? I'm worried my regular tax program won't handle inheritance properly.
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Fatima Al-Suwaidi
•16 Most major tax software (TurboTax, H&R Block, TaxAct) can handle inheritance and property sales. The key is making sure you enter the correct basis information. When it asks about the sale of property and you input the 1099-S information, it should specifically ask if this was inherited property and when the person died, then calculate the stepped-up basis correctly.
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