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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3346
Experience:  15+ years tax preparation and tax advice.
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My Mothers house was in a life estate until her death

Resolved Question:

My Mother''s house was in a life estate until her death at which time it passed to my brother sister and me. We sold the house and now I received a 1099 from the attorney who handled the sale. Do we pay capital gains on this money even though it is an inheritance?
Submitted: 8 years ago.
Category: Tax
Expert:  Wendy Reed replied 8 years ago.

Hello there,

If you inherited the home, then you will receive what is known as a "stepped-up" basis for tax purposes. This means that your basis or investment in the home is what the fair market value of the home was on the date of your mother's death. Assuming that you and your brother and sister have not lived in this home for 2 of the last 5 years, then your capital gain or loss will be figured as the sale price, minus selling expenses, minus the basis. You may even have a capital loss if the house lowered in value since your mother's death or the selling fees were higher than any appreciation.

You will each report your portion (1/3) of the gain/loss on Schedule D of your tax returns. If you do have a gain, then it is long term and will be taxed at a maximum of 15%.

If you or your brother or sister has lived in the home and owned the home for 2 of the last 5 years,then you may be eligible for capital gains exclusion.

Please let me know if you need any additional information.

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