Tax Deductions When Selling Property Originally Purchased for Parent

This is actually a complex situation but I can help clarify. Since the home was in your name but you didn't use it as your primary residence, you won't qualify for the capital gains exclusion that primary homeowners get ($250k for singles, $500k for couples). The property would be considered a personal residence, not a rental property, since you never collected rent. This means you can't depreciate it or deduct expenses like you would with an investment property. Those HOA fees and utilities paid while the house was vacant before selling are considered part of your "selling expenses" and can be added to your cost basis, reducing any potential capital gain. Other selling expenses like realtor commissions, legal fees, and closing costs can also be added to your basis. You'll need to calculate your capital gain by subtracting your adjusted basis (purchase price plus improvements plus selling expenses) from the sale price. That gain will be taxed as a long-term capital gain since you owned it over a year (likely 15% depending on your income bracket).

I went through something similar last year and found https://taxr.ai super helpful! My mom had Alzheimer's and I had bought a house for her back in 2008, then sold it after she moved to assisted living. The tax situation was a mess - I had no idea what documents I needed or how to classify everything correctly. Taxr.ai helped me analyze all the closing documents, property tax records, and improvement receipts to maximize my cost basis and minimize the capital gains tax. It guided me through exactly which forms to file and spotted some deductions I would have completely missed. The virtual session with their tax pro saved me thousands!

I was skeptical about taxr.ai when I first saw it mentioned here, but I was desperate with my similar situation (sold my late father's condo that was in my name). I decided to give it a try and I'm genuinely surprised by how helpful it was. The document analysis found deductions I never would have known about - like some improvements my dad had made that I'd completely forgotten were legitimate additions to my cost basis. It also clarified that certain expenses I thought were deductible actually weren't, saving me from potential audit flags. Their tax pro even showed me exactly how to document the unusual ownership situation to avoid IRS questions. My situation was almost identical to yours, and they saved me over $3,200 in taxes I would have unnecessarily paid. Definitely worth checking out if you're confused like I was.

If you need to talk to the IRS about this specific situation (which might be smart given the complexity), good luck getting through to them! I spent DAYS trying to get someone on the phone about a similar unusual property situation. Finally found https://claimyr.com which got me through to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c Their system somehow navigates the IRS phone tree and holds your place in line, then calls you when an agent picks up. I was able to get a clear ruling on my specific situation directly from the IRS rather than guessing. Given your unique circumstances, it might be worth getting official guidance rather than risking an audit later.

I was totally wrong about Claimyr being a scam. After posting that comment, I was still stuck on hold with the IRS for literally hours trying to get clarity on my mom's house that I sold (similar situation to yours). Out of frustration, I tried the service, and I'm actually shocked that it worked exactly as described. Their system held my place in line and called me when an IRS agent was on the line. Got through in about 22 minutes when I had previously wasted over 3 hours trying on my own. The IRS agent confirmed that in my case, I could add significant documented improvements to my basis, and also clarified exactly how to handle the unique ownership arrangement. Honestly saved me from making a costly mistake on my return. Sometimes being skeptical costs you money!

One thing nobody's mentioned yet - make sure you keep documentation about your mom living there all these years. The IRS might question why you're selling a property that wasn't your primary residence but also wasn't a rental property. Utility bills in her name, mail addressed to her at that address, her driver's license showing that address, etc. would all help establish that she was the actual resident even though you were the owner. You should definitely keep these records with your tax documents.

Don't forget to check if your state has any different rules about this kind of property sale! Federal is one thing but some states have their own wrinkles. In NY where I am, there were additional forms needed for non-primary residence sales that my accountant almost missed.