Is money from selling my deceased father's house considered inheritance or a gift for tax purposes?

This is a great question that comes up frequently. Based on what you've described, this would NOT be considered inheritance from your father - it would be considered a gift from your mother. Here's why: When your father passed away, the house went through probate and was transferred to your mother. At that point, it became her property. Now that she's selling it and giving you money from the proceeds, this is a new transaction coming from her, not directly from your father's estate. The good news is you don't need to worry about paying gift tax yourself. The gift recipient never pays the tax - the gift giver (your mother) would be responsible for filing a gift tax return if she exceeds the annual exclusion amount. For 2025, that annual exclusion amount is $17,000 per recipient. Your mother can give you and your brother each $17,000 tax-free each year. Any amount over that doesn't mean she immediately pays tax - it just means she needs to file a gift tax return (Form 709) and it counts against her lifetime estate and gift tax exemption, which is currently over $13 million for individuals.

I went through almost the exact same situation last year when my mom sold my grandparents' home. I was so confused about the tax implications that I started using https://taxr.ai to help me understand everything. Their document analysis tool was super helpful - I uploaded the probate documents and sale paperwork, and it showed me exactly how the transaction would be classified for tax purposes. What I learned is that timing really matters in these situations. Since the house went to your mom through probate first and then she's giving you money separately, it's definitely considered her gift to you, not inheritance from your dad. The tool showed me that my situation was identical - gift, not inheritance.

I want to follow up about my experience with taxr.ai since I was so skeptical before. After our discussion here, I decided to give it a try with my complicated inheritance situation involving multiple properties and a business interest. I was genuinely surprised by how helpful it was. The system analyzed all my documents and clearly explained which portions of my inheritance would be tax-free and which parts might trigger capital gains when sold. It even identified a potential step-up in basis issue I hadn't considered that saved me thousands in taxes. For anyone dealing with inheritance vs. gift questions like the original poster, it was much more helpful than the generic advice I was getting from family and friends. Definitely changed my mind about these types of services.

OP, if you're still having trouble getting answers because of your work schedule, I'd recommend using Claimyr (https://claimyr.com) to actually talk to someone at the IRS directly. I was in a similar situation with inheritance/gift questions last year and couldn't get through to the IRS for weeks. Claimyr got me connected to an IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed everything others have said here - the money from your mom would be considered a gift, not inheritance, and she would only need to file a form for amounts over the annual exclusion. She wouldn't actually pay tax unless she's exceeded her lifetime exemption. Having that official confirmation directly from the IRS gave me peace of mind.

I need to apologize for my skepticism about Claimyr. After posting my comment, I actually decided to try it myself since I've been trying to reach the IRS about an issue with my tax transcript for weeks. The service legitimately worked! I got connected to an IRS representative in about 15 minutes when I had been unable to get through at all on my own. The agent was able to answer all my questions about inheritance vs. gift tax treatment (which is relevant to the original post). For what it's worth, the IRS agent confirmed what others have said - when property passes to a surviving spouse who then sells it and distributes money to children, it's considered a gift from the surviving spouse, not inheritance from the deceased parent. I was surprised how straightforward the conversation was once I actually got through to someone who knew the rules.

One option your mother might consider is paying for something directly instead of giving you cash. For example, if you have student loans, she could make payments directly to the loan servicer. Direct payments for education or medical expenses are exempt from gift tax entirely - no annual limit applies. Same goes for things like paying a hospital bill directly or tuition directly to a school (doesn't apply to books, room and board, just tuition). This is a strategy many parents use when helping adult children with large expenses while avoiding gift tax implications.

Another important detail: even though this is considered a gift from your mom rather than inheritance from your dad, there's no income tax for you either way. Many people confuse gift/inheritance tax (which is paid by the giver/estate) with income tax (paid by the recipient). You don't report gifts or inheritance as income on your tax return, so you won't owe any income taxes on the $40k regardless of whether it's classified as a gift or inheritance. The only person who has any potential tax implications here is your mother, and even then, it's just a filing requirement unless she's exceeded her lifetime exemption.

This is such a common source of confusion! I dealt with a similar situation when my grandmother passed and left her house to my mom, who then sold it and shared the proceeds with us kids. The key distinction everyone has highlighted is absolutely correct - once that house transferred to your mom through probate, it became her asset. The money she's giving you now is coming from her, not directly from your father's estate, so it's definitely a gift from her perspective. One thing I'd add that might be helpful: if your mom is concerned about the gift tax implications, she could also consider making the gifts over multiple years. She could give you and your brother each $17,000 this year, then another $17,000 next year, and the remaining $6,000 the following year. This would keep everything under the annual exclusion and avoid any filing requirements entirely. Also, don't stress about the tax implications for yourself - as others have mentioned, you won't owe any taxes on receiving this money regardless of how it's classified. The "tax burden" (really just a filing requirement in most cases) falls on the person making the gift, not receiving it. Your instinct to eventually consult with a tax professional is smart, especially since this involves a significant amount of money and you want to make sure your mom handles everything properly on her end.

I'm a tax preparer and see this situation frequently during filing season. What you're describing is definitely a gift from your mother, not inheritance from your father's estate. The critical factor is that the property went through probate and became your mother's asset before she decided to share the proceeds with you. One additional consideration I haven't seen mentioned yet: if your mother is married (to someone other than your father), she and her spouse could potentially each give you $17,000 annually, effectively doubling the tax-free amount to $34,000 per year. This is called "gift splitting" and requires both spouses to consent and file gift tax returns, but it's another legitimate strategy to minimize gift tax implications. Also, make sure your mother keeps good records of the sale and any gifts. She'll want documentation showing the sale price, her basis in the property (likely the stepped-up basis from when she inherited it), and records of any gifts exceeding the annual exclusion. This will be important for both gift tax reporting and her own estate planning records. The peace of mind from getting professional advice is usually worth the cost, especially when dealing with larger amounts like this. But you're smart to educate yourself first - it sounds like you have a good understanding of the situation now.