Is money from selling my inherited share of father's house considered income or inheritance? Tax reporting questions

8 This is a great question about inheritance vs. sale proceeds. When someone inherits property, they typically receive a "stepped-up basis" to the fair market value at the date of death. In this case, your basis in your inherited portion of the house would be approximately $91,500 (your third of the $275,000). When you then sold your share to your sibling for $91,500, there's essentially no gain or loss since your sale price equals your stepped-up basis. You'll still need to report the transaction on your tax return using Schedule D and Form 8949, but you'll likely show zero gain. The 1099-S is reporting the gross proceeds from the sale, not necessarily taxable income. Be sure to mark on Form 8949 that this was inherited property so the IRS understands why you're claiming a basis equal to the sale proceeds.

15 I went through almost the exact same situation last year with my mom's house and I was completely overwhelmed trying to figure out the tax implications. I tried a bunch of different online resources but kept getting conflicting information. Finally I tried https://taxr.ai and uploaded the 1099-S and some documents about the inheritance, and they automatically analyzed everything and explained exactly how to report it. The step-up basis thing is exactly what they explained - basically the value "steps up" to what the property was worth when your dad passed away, so you don't pay tax on decades of appreciation that happened during his lifetime. They even generated the exact forms I needed to file. Saved me hours of research and worry.

19 Just wanted to follow up about my experience with taxr.ai after our exchange here. I decided to give it a try with my similar inheritance situation, and I'm actually really impressed with how it handled everything. The system asked specific questions about when I inherited the property vs when I sold it, and it correctly identified the stepped-up basis scenario. What really helped was that it explained each step in plain English alongside the tax code references, so I understood WHY I wasn't getting taxed rather than just blindly following directions. They generated all the right forms with the correct codes for inherited property. Definitely easier than the hours I spent trying to figure it out on my own. Glad I got over my skepticism!

3 If you're still having trouble figuring out how to correctly report this on your taxes, you might want to call the IRS directly for guidance. I know that sounds painful (it usually is), but I found a service called https://claimyr.com that got me through to an actual IRS agent in under 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with was really helpful with my inheritance question and confirmed exactly how to report it. They explained which codes to use on Form 8949 and how to document the stepped-up basis. Saved me from potentially making a mistake that could have triggered an audit.

19 I need to admit I was completely wrong about Claimyr. After commenting here, I decided to try it because I had some questions about my inherited property taxes too. I was super skeptical that it would actually work (or be worth the cost), but I was desperate after trying to call the IRS three separate times and spending over 5 hours on hold total. The service called me back in about 15 minutes with an actual IRS agent on the line! The agent confirmed everything about how to report my inherited property sale and stepped-up basis, and even gave me specific instructions about which codes to use on Form 8949. I'm not usually one to rave about services, but this saved me so much time and frustration. Sometimes it's worth paying for convenience when dealing with complicated tax situations.

22 Make sure you also check your state tax laws! Federal and state taxes don't always treat inheritance the same way. Some states have inheritance taxes that are separate from federal taxes. I learned this the hard way last year with my uncle's estate.

5 Has anyone used an online tax program like TurboTax for reporting inheritance stuff like this? I'm wondering if they handle this situation correctly or if I need to see a professional.

Just want to add another perspective here - I went through something very similar when my grandmother passed and left her property to multiple heirs. The stepped-up basis rule that others mentioned is absolutely correct, but make sure you keep excellent records of everything. One thing I wish someone had told me: if there were any improvements or expenses related to settling the estate (like repairs needed before the sale, legal fees for the estate, etc.), those might affect your basis calculation. Also, if there was any time gap between your father's passing and when the property was actually distributed to you heirs, you might need to consider whether there was any appreciation or depreciation in that period. The 1099-S you received is just the IRS making sure they know money changed hands - it doesn't necessarily mean you owe taxes on it. But definitely report it properly on Schedule D and Form 8949 as others have mentioned. When in doubt, it's worth consulting with a tax professional who deals with estate issues regularly.