The sale of inherited property should be reported on the tax return.
If you inherit a home, land, or other real estate, you may have to pay taxes on any gains you make on the property.Capital gains can be calculated by looking at the basis in the property.Normally, this would be the amount you paid for the property, but since you inherit it, your basis is the fair market value of it.Form 8949 and Schedule D can be used to report capital gains on a tax return.
Step 1: The person to talk to is the person who is in charge of the estate.
You need to know your basis in the property in order to figure out if your sale is tax deductible.This is the value of the property on the day the person died.The person's estate should be able to give you this information.You can use the value listed on the estate tax return as your basis.If an estate tax return was filed, a different valuation date may have been used.To make sure your information matches the information on the estate tax return, you need to use the same date.
Step 2: On the date of death, determine the fair market value for the property.
If the previous owner died before the estate tax return was filed, your basis in the property is the date of the death.The amount should be included in the records.You should talk to an attorney who specializes in inherited property if you can't get the fair market value of the property on the day of your death.They will tell you how to determine the fair market value of the property.
Step 3: You should add the cost of the improvements to the basis.
Improvements made to the property before it was sold become part of the basis.Fees and expenses related to the sale of the property become part of your basis in the house.If you paint a house and put in new flooring before you sell it, you can add the cost of the painting and flooring to your basis in the property.
Step 4: The sale price of the property can be compared to your costs.
If you sold the property for more than your basis, you have capital gains.You have capital losses if you sold the property for less than your basis.Capital losses are only deductible if they are related to the sale of investments, real estate, or other investment property.You don't have to report capital losses on your taxes if you have no capital gains.Depending on your filing status and other income or losses throughout the year, capital gains can be taxed.
Step 5: You can download Form 8949 for the correct tax year.
You can get a copy of Form 8949 from the IRS website if you do your taxes by hand.You should be able to access the instructions for filling out the form.Check the upper right-hand corner of the form to make sure you have the right form.You want to make sure you have the most up-to-date version of the forms.
Step 6: Make the property a long-term asset.
Form 8949 separates short- and long-term assets from one another.Regardless of how long you held the property before selling it, it is still a long-term asset.Part II deals with long-term assets.Unless you have short-term capital gains or losses from other assets that you need to report, skip Part I.There is a check box to indicate that you are reporting a long-term transaction.Gains or losses are reported from the sale of stocks, bonds, and other investments.
Step 7: You can enter the correct figures.
There are 8 lettered columns in the table for Part II.Information about your property will be put on one line in each column.In column a, write a description of the property.This is usually the street address.The date you acquired the property should be written in a month-day-year format.The date that the estate legally transferred the property to you is not the date the previous owner died.The sale of the property was completed in a month-day-year format.Write the total amount you sold the property in the column.Write your total basis in the column.On the date of death, this is the fair market value of the property.For column h, subtract column e from column d.The number is the gain or loss on the property.A loss is a negative number.
Step 8: Add any capital gains or losses that you have.
If you have any other long-term capital transactions, you should include the same information about those on the lines below about the sale of your property.To sell long-term investment properties reported to you on a Form 1099-B, you'll need to complete a separate Form 8949.If you have short-term capital transactions that need to be reported, you can fill them in on Part I of the same form.
Step 9: The amount in your proceeds, basis, and gain or loss columns.
If the sale of your inherited property is the only long-term capital transaction you're reporting, simply copy the numbers from the first line to the second line at the bottom of the table.Make sure you put the correct number in the column.You can copy these numbers into line 10 of your Schedule D if you checked Box (F) at the top of Part II.
Step 10: For the correct tax year, download the schedule D.
If you're doing your taxes by hand, you should get a copy of Schedule D.Before you start, you may want to read the instructions.The page is updated by the IRS every year.You should double-check the year in the upper right-hand corner to make sure it's the same as the one you're filing taxes for.
Step 11: In Part II of Schedule D you can enter your totals from Form 8949.
If you have separate short-term capital transactions to report, copy the totals on your Form 8949 into the correct columns on line 10.If the sale of your inherited property is the only capital transaction you have to report, lines 11 and 14 won't apply to you.If none of them mention anything familiar, you can leave them blank.Column (h) is where the total capital gain or loss should be written.Take the negative numbers from the positive numbers.
Step 12: You must report your gain or loss in Part III.
Combine short- and long-term gains with losses.If the line is a gain, you'll have more work to do.The form has instructions on it.There are instructions for Schedule D.
Step 13: Take your net gain or loss from Schedule D and put it on your tax return.
Schedule D will tell you the exact line on your Form 1040 to write your net gain or loss.You need to copy this amount exactly.If you're in the lowest 2 tax brackets, net capital gain on a long-term asset is taxed at 5%.