Is money from selling my inherited house share considered income? How to report this inheritance on taxes with 1099-S?
Title: Is money from selling my inherited house share considered income? How to report this inheritance on taxes with 1099-S? 1 My dad recently passed away and left his house to me and my two brothers. The house is worth about $275,000 total. One of my brothers was living there with dad before he passed and decided he wanted to keep the place. He bought out me and my other brother's portions of the house. I got a check for $91,500 as my third of the house value. I just received a 1099-S form in the mail showing that I received this $91,500. I'm confused about how to handle this on my taxes. Is this considered regular income that I need to pay taxes on? Or is this considered inheritance which I think might be treated differently? I've never dealt with inheritance or property sales before, so I'm completely lost on how to report this on my tax return. Do I need to file some special form? Will I owe a bunch of taxes on this money?
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GalacticGuardian
3 This is a good question! The money you received isn't regular income - it's proceeds from selling your inherited property. Since you inherited the property when your father passed away, you received what's called a "stepped-up basis" to the fair market value of the property at the date of his death. The 1099-S reports the gross proceeds from the real estate transaction. You'll need to report this on Schedule D of your tax return. The good news is that if you sold the property for approximately the same value as when you inherited it, you'll likely have little to no capital gain to report. You'll want to determine the fair market value of your portion at the time of inheritance (your "basis"), then calculate the difference between that and your sale proceeds of $91,500. Only that difference would be taxable as a capital gain - not the entire amount. If you sold it shortly after inheriting, the gain might be minimal or none.
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GalacticGuardian
•8 Thanks for explaining. So if the house was worth $275,000 when my dad died, and I got $91,500 for my third, would I basically have no capital gains since those are pretty much the same value? Also, do I need any special documentation to prove the house value at time of death?
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GalacticGuardian
•3 You're on the right track! If your share was worth approximately $91,500 when you inherited it (one-third of $275,000), and you sold it for $91,500, then you would have no capital gain to report. You'd still need to report the transaction on Schedule D, but your gain would be zero. As for documentation, an appraisal from around the time of your father's death would be ideal. If you don't have one, other documentation showing the property's value could help - like comparable home sales in the area, property tax assessments, or even real estate listings from that time period. Keep these records with your tax documents in case of questions later.
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GalacticGuardian
12 After struggling with almost this exact situation last year, I found an AI tool that saved me hours of research and stress. I was going in circles trying to figure out how to report my inherited property sale correctly. I uploaded my 1099-S and other inheritance documents to https://taxr.ai and it analyzed everything immediately. It confirmed I only needed to pay taxes on the appreciation since inheriting (which was minimal in my case), and it showed me exactly how to report it on Schedule D. The system explained the stepped-up basis concept in simple terms and even identified some deductions related to the property that my regular tax software missed. It also created a complete audit trail documenting my basis calculation in case the IRS ever questions it.
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GalacticGuardian
•17 How accurate is this for complicated inheritance situations? My mom left me partial ownership in multiple properties and I'm dreading figuring it all out. Does it handle multiple inherited assets or just single properties?
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GalacticGuardian
•14 I'm skeptical about AI tax tools. How does it verify the property values? Can it actually determine what the fair market value was at date of death if that was a couple years ago?
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GalacticGuardian
•12 It handles multiple properties very well. You can upload documents for each property separately, and it organizes everything by asset. I had three partial property interests with different co-owners, and it tracked each one correctly with the appropriate ownership percentages. For determining property values, it actually has historical property value data it can reference. You can also upload any appraisals or comparative market analyses you have, and it will incorporate those. In my case, I uploaded the executor's valuation documents and it used those figures as the basis, then explained how that documentation strengthened my position in case of audit.
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GalacticGuardian
14 I was really skeptical about using AI for something as important as inheritance taxes, but I decided to try https://taxr.ai after seeing it mentioned here. I'm genuinely shocked at how helpful it was for my situation. I inherited partial interest in my grandparents' farm last year and had no idea how to handle the 1099-S I received after selling my portion. The tool immediately identified the stepped-up basis rules and showed me that I'd actually be reporting a small loss rather than a gain. The documentation it generated for my records was incredibly detailed. It even flagged that I should include certain executor fees as part of my basis calculation, which reduced my taxable amount further. This saved me from potentially overpaying by thousands!
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GalacticGuardian
19 If you're having trouble getting clear answers from the IRS about how to report your inheritance, you're not alone. I spent WEEKS trying to get through to someone who could answer my inheritance tax questions last year. I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Instead of waiting on hold for hours, they navigated the IRS phone system for me and called me back when they had an agent on the line. The agent confirmed that I only needed to pay taxes on the appreciation since inheritance (which was minimal in my case since I sold quickly). She also walked me through exactly which forms to file. Having an actual IRS employee confirm my understanding gave me huge peace of mind when filing.
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GalacticGuardian
•22 Wait, how does this actually work? Do they have some special connection to the IRS or something? I've been trying to get through about my inherited IRA for days.
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GalacticGuardian
•14 This sounds too good to be true. The IRS is practically unreachable these days. You're telling me this service somehow magically gets through when millions of people can't? I'll believe it when I see it.
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GalacticGuardian
•19 They don't have special IRS connections - they just have a system that navigates the IRS phone tree and waits on hold for you. When they finally reach a human, they call you and connect you directly to that agent. It's like having someone else wait in line for you. It worked amazingly well for me. I had tried calling the IRS myself multiple times about my inheritance reporting questions and never got through. With this service, I got connected to a real agent within about 2 hours (while I just went about my day instead of sitting on hold). The agent was able to answer all my specific questions about reporting inherited property sales.
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GalacticGuardian
14 I need to apologize for being so skeptical about Claimyr. After my frustrated comment, I decided to try it as a last resort for my inherited IRA questions. I've been trying to reach the IRS for WEEKS about RMD requirements. I was genuinely shocked when I got a call back about 90 minutes after signing up. They had an actual IRS agent on the line! The agent walked me through exactly how to handle my inherited IRA distributions and confirmed I was calculating the basis correctly. This service literally saved me from making a costly mistake on my taxes. I was about to report things incorrectly based on conflicting advice from friends. Having direct confirmation from the IRS gave me total confidence in how to proceed.
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GalacticGuardian
10 Just wanted to add something important here - if you lived in the house for at least 2 years out of the 5 years before selling it, you might qualify for the primary residence exclusion. That would mean you could exclude up to $250,000 of gain ($500,000 for married couples) from your taxes. But since you mentioned your brother was the one living there, this probably doesn't apply to your situation. Just wanted to mention it in case anyone else reading has a similar inheritance situation but they actually lived in the inherited house.
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GalacticGuardian
•8 That's interesting. So if I had moved into the house instead of selling my share to my brother, I could have potentially sold it tax-free later? Do you know if the 2-year clock would start from when my dad passed away or would time he spent there count too?
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GalacticGuardian
•10 The 2-year clock would start when you actually owned the house, so from the time you inherited it. Your father's time living there wouldn't count toward your ownership period. And yes, if you had moved in and lived there for at least 2 years, you could have potentially excluded up to $250,000 of gain when selling. But remember, with inherited property, your basis is stepped up to the fair market value at date of death anyway, so you'd only pay taxes on appreciation that occurred after you inherited it.
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GalacticGuardian
25 You might also want to check if your state has inheritance taxes! I'm in Pennsylvania and was surprised to learn they take 4.5% for direct descendants like children. The federal government might not tax your inheritance but some states still do. I got caught off guard by this last year.
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GalacticGuardian
•11 Good point! I live in California and don't think we have a state inheritance tax, but I'll double check. Does anyone know which states have inheritance taxes?
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GalacticGuardian
•25 Only six states still have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each state has different rates and exemptions. Some exempt close relatives entirely while others have lower rates for them. If you're in California, you're right that there's no state inheritance tax there. But always good to verify based on where the property was located, not just where you live. The tax typically applies based on where the deceased person lived or where the property is located.
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