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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16580
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Hi there, My 3 brothers and I inherited my fathers house when

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Hi there,
My 3 brothers and I inherited my fathers house when he died in 2002 with the understanding that my step mother could live there until she died. My step mother passed away in March and we are selling the house. We will be dividing the proceeds of the sale evenly. Come tax time next year, how will this income be taxed, as capital gains or inheritance and is there a difference?

MyVirtualCPA : Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
MyVirtualCPA : This will be taxed as capital gains.
MyVirtualCPA : Your basis will be the value of the house at the date of the death of your husband
MyVirtualCPA : I mean father
MyVirtualCPA : You were not taxed when you actually received the house, which was your inheritance
Customer: Each of the brothers will be taxed on the value of the house in 2002?
MyVirtualCPA : Okay say the house was worth $100,000 in 2002 and you have sold it for $150,000
MyVirtualCPA : each of you would be taxed on your share of $50,000
Customer: I believe we are selling it for considerably less than it was worth in 2002
MyVirtualCPA : Then there is no tax on the transaction
MyVirtualCPA : You will have a long term capital loss, which you can deduct $3,000 a year against other income
MyVirtualCPA : or you can deduct the entire amount against capital gains
Customer: When I declare this amount to my accountant, what documentation will I need from my brother, the executor?
MyVirtualCPA : You should get a 1099-S from the title company that closes the sale transaction
MyVirtualCPA : And your brother should tell you the value of the house in 2002
Customer: Ah, so the 1099 will be determine where the source of income came from?
MyVirtualCPA : Yes
Customer: I will simply be receiving a check from my share from the seller, so I was wondering how to prove where the income came from
MyVirtualCPA : You should get the 1099-S
Customer: So I will be taxed on this income different than if it was strictly capital gains?
MyVirtualCPA : No, it is strictly capital gain
MyVirtualCPA : But if you sell at a loss, it's a capital loss
MyVirtualCPA : and you won't owe tax on your portion of the proceeds
MyVirtualCPA : You will be able to deduct the loss
Customer: Oh...I thought the tax on an inheritance was less
MyVirtualCPA : When you actually got the house, that was your inheritance
MyVirtualCPA : you pay no tax on the value of the house
MyVirtualCPA : when you sell the house, that's another transaction
MyVirtualCPA : When you inherited the house, you received an asset, but did not have to pay tax on the receipt of that asset
Customer: Got it....I think. I'm sure my accountant will understand if I provide her with the right info.She also mentioned the gain/loss issue.
MyVirtualCPA : Yes she would be able to do this
MyVirtualCPA : it's very simple
Customer: She had suggested I talk to a lawyer, hence my discussion here. I don't think I need to here an attorney. The amount is not worth it I believe
MyVirtualCPA : No, there's no need to speak with an attorney
Customer: Thank you. You have helped clarify.
MyVirtualCPA : You're welcome
MyVirtualCPA : Please let me know if you need anything additional
Customer: I will try and print this out so I can relate to my wife....the smart one
MyVirtualCPA : Please rate my response as "excellent" so that I may receive credit for assisting you today
Customer: Okidoki
MyVirtualCPA : Thanks again for using
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