Have a Tax Question? Ask a Tax Expert
Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.
Generally, the income tax basis for determining gain or loss would be the fair market value of the property at the date of death.
However, there are issues now with respect to basis depending upon the size of an estate.
Were there actually any federal estate taxes paid? What was the size of the estate & what was the FMV of the house included in the estate & what did the house sell for.
The house sold for $320,000 and was basically the only big asset. Don't know what FMV is.
House was bought in 1969 for $40,000. I think only PA state estate tax of 4 or 6 percent of whole sale price was paid
How long after your parent's death was the house sold? Was it sold to a family member or an independent party?
Independant party within about 7 months of death.
It doesn't matter what it was purchased for back in 1969, so that's not a problem.
In essence, that value would be sufficient to use for the FMV at the date of death, absent an appraisal. Some figure must have been used for probate or PA estate tax purposes.
Was a 1099-S issued to anyone with respect to the sale?
Asking price was 335 or 340 and I believe there was an appraisal.
No 1099-S has been issued to anyone as of this time
Sale was last March. 2011
Actually, there was probably a long-term loss on the sale equal to the selling expenses related to the sale. Property inherited in this manner is considered "property held for investment" and is long-term in nature no matter how long it is before the property is sold.
I need you to simplify that answer.
Based upon what you have told me so far, either the estate would be required to file an income tax return on Form 1041 to report the sale of the home, or the beneficiaries would be required to report their proportionate share of the house on their 2011 income tax return on Schedule D.
I'll be happy to simplify anything I can, can you be more specific as to your question?
We did file final tax return for parent, but don't know about the Form 1041. Is there a maximum percentage an individual would pay as a cap?
There wouldn't be any tax due.
I'm just trying to help you avoid notices, correspondence with the IRS & the likelihood that you would have to engage professional assistance to deal with the IRS.
I didn't understand the long-term loss on sale versus expenses part.
So I don't have to declare the $30,000 on my federal income taxes as income this year.
These things get complicated real fast.
How many beneficiaries of the estate were there?
Did everyone have to sign the deed to the buyer or did an executor or executrix handle everything for the estate & sign the deed in that capacity?
Executor signed. Final tax return was 1040 advising of death but did not pay any tax on sale of real estate because entire estate was under $500,000
OK, well the executor would be responsible to have a fiduciary return (on Form 1041) prepared to report the sale of the home & any other income the estate received as well as the distribution of the estate proceeds to the beneficiaries. It is highly unlikely that any income tax would be due & in fact, as stated above, the beneficiaries most likely have a long-term capital loss on the sale of the home which could be claimed on their individual income tax returns for 2011.
Thank you. I will check with the executor to see if those forms were filed.