Tax Deductions for Home I Purchased for My Mother After Selling

You're in a somewhat unique situation, but I can help you understand your options. Since the home was never your primary residence (you need to live there for at least 2 out of 5 years before selling to qualify for the capital gains exclusion), you'll likely need to report the sale as a capital asset. When you sell a capital asset, you'll report the difference between your selling price and your "basis" (what you paid for the home plus qualifying improvements). If you sold for more than your basis, that's a capital gain. If less, it's a capital loss. For the time the house was vacant, you can deduct property taxes as an itemized deduction on Schedule A. The maintenance fees and utilities during the vacant period might be considered expenses related to the sale, which could adjust your basis in the property, potentially reducing any capital gain. Since this was your father's home and not a rental property, you wouldn't report it on Schedule E, but rather on Schedule D and possibly Form 8949 depending on your situation.

I was in a similar situation with my mom's care, and I found https://taxr.ai incredibly helpful for navigating these weird tax situations that don't fit neatly into TurboTax categories. I initially thought I could claim the primary residence exclusion too, but they helped me understand I needed to report it as a capital asset like the other commenter mentioned. What really helped was being able to upload my documents and get clarity on what counted toward my basis. I had made several improvements to mom's place over the years and wasn't sure what qualified. They explained that major improvements (like the new water heater and kitchen update I did) could be added to my basis, but regular maintenance couldn't. They also helped me identify some deductions I missed for the period when the house was empty before sale. Definitely worth checking out if you're confused about the documentation requirements for proving these expenses.

I was initially skeptical about using taxr.ai when someone recommended it, but I'm glad I gave it a shot! My parents passed away last year and left me their home which I sold this year - different situation than yours but similarly complicated with basis calculations and potential deductions. What impressed me was how quickly they identified that I could add several improvements my parents had made to the property to increase the basis (they had good records). They even helped me understand how to document the fair market value at the time I inherited it, which made a HUGE difference in the capital gains calculation. The step-by-step guidance for completing Schedule D and Form 8949 was exactly what I needed. I'm not sure I would have gotten it right on my own using just TurboTax. Definitely saved me from potential issues down the road!

Have you tried calling the IRS directly? I was stuck in a similar situation last year with my brother's property and couldn't get clear answers online. After days of trying to get through to the IRS (literally spent hours on hold), I found https://claimyr.com and used their service to get a callback from the IRS without the wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with clarified that in my situation (which sounds similar to yours), I needed to report the sale as a capital asset on Schedule D and Form 8949. She confirmed exactly which expenses related to the sale could be added to my basis and which had to be taken as itemized deductions. For the period the house was vacant, she said property taxes were deductible on Schedule A, but HOA fees and utilities were considered part of the selling expenses that could adjust my basis. Having that clarification directly from the IRS gave me peace of mind when filing.

I owe everyone here an apology - especially to the person who recommended Claimyr. I was so skeptical that I called it a scam, but after trying for THREE DAYS to get through to the IRS about my mom's estate taxes, I broke down and tried it. Within 90 minutes I got a call back from an actual IRS agent who walked me through exactly how to handle the sale of mom's house. The agent confirmed that since I was never a resident of the property, I couldn't claim the primary residence exclusion, but she explained how to properly document all the improvements we'd made to the house over the years to increase the basis and reduce the capital gain. She even explained which forms I needed beyond what TurboTax was suggesting. For anyone dealing with complex scenarios like this - swallow your pride and use the service. Three days of frustration versus 90 minutes to get actual help... I should have done this weeks ago.

Don't forget to look into stepped-up basis rules! If your name wasn't the only one on the deed and your father had partial ownership, his portion would receive a stepped-up basis to the fair market value at his date of death. This could significantly reduce your capital gains tax liability. Also, keep in mind that if you used the home to care for your father, you might qualify for some medical expense deductions if you paid for modifications to the home for medical care (wheelchair ramps, grab bars, etc.). These are deductible as medical expenses if they exceed the 7.5% AGI threshold.

Has anyone used FreeTaxUSA for a situation like this? TurboTax kept confusing me when I tried to enter the sale of my mother-in-law's home that was in our name.