Tax implications when selling an inherited mobile home

The tax implications here depend on the stepped-up basis rules for inherited property. When someone inherits property, the basis (value used to calculate gain/loss) is generally "stepped up" to the fair market value at the date of death. In your case, if the mobile home was worth $65,000 when your father-in-law passed away, and it sold for $98,000, there's potentially a taxable gain of $33,000. Since this was personal property (not real estate), this would typically be reported as a capital gain. As for who pays the tax - technically, it's the seller who reports this on their tax return. Since your in-laws put the property in one person's name for the sale, that person is legally the seller and would typically report the gain. However, if that person is just acting as an agent for the estate or beneficiaries, the tax liability might actually fall to the estate or be distributed among beneficiaries.

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One thing nobody's mentioned yet - if the mobile home was technically owned by the estate when it was sold (sounds like it was), then the estate would file Form 1041 and report the capital gain there. The tax would be paid by the estate before distribution to beneficiaries. But if title was transferred to the beneficiaries first and then they sold it, each beneficiary would report their portion of the gain on their individual returns. The contract your in-laws created complicates things because it creates a sort of agency relationship. You might need a tax professional to review the specific contract language.

Don't forget to look into state taxes too! Federal is only part of it. Some states have inheritance taxes that are separate from federal estate taxes. For example, in PA where I live, there's an inheritance tax even if the estate is below the federal threshold.

This is a complex situation that really highlights why estate planning and proper documentation are so important. Based on what you've described, it sounds like the estate should be filing Form 1041 since the mobile home was still owned by the estate at the time of sale. The arrangement where your in-laws put the property in someone else's name for the sale creates some potential complications. That person might technically be considered the seller for tax purposes, even if they're just acting as an agent. The signed contract you mentioned should specify whether they're acting on behalf of the estate or the beneficiaries. Given the $33,000 gain and the unusual sale arrangement, I'd strongly recommend consulting with a tax professional or estate attorney who can review the specific contract language and advise on the proper reporting. The IRS can be very particular about how these transactions are structured and reported, especially when there are agency relationships involved. Also, make sure the executor is aware of their filing obligations - they may need to file Form 1041 even if the estate doesn't owe any tax, depending on the gross income of the estate.