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08-05-2017 06:21 AM
My husband's parents passed away 7 years ago and left their house equally to my husband and his 2 sisters. One sister rented the house out for 5 years without distributing rental income to other siblings. The house was finally sold this years and the proceeds equally distributed. A lawyer was not involved and no 1099 was drawn up. The appraised value on the house at the time that his parents passed away was $88,000. The house was sold for $105,000. What does my husband need to claim on his proceeds from the house and how should he claim it?
08-08-2017 10:24 AM
Welcome to the H&R Block community.
So there are a few things to look at here because it's not proceeds that are taxable. Proceeds include everything received from the buyer. We have to figure your taxable GAIN on the sale. Gain is equal to the amount that you actually profited on the sale.
Because this is a rental it will be kind of in depth as well. Gain from the sale of a home is reported on Schedule D, and your taxable gain is figured on either Form 8949 or Form 4797 or using both depending on whether or not the property was a personal residence, a rental, or both over the time that you owned it.
If there were any selling expenses incurred, such as commission paid to a real estate professional or expenses for selling without the assistance of a professional, then these and other selling expenses are subtracted from the selling price to figure your realized amount on the sale. This reduces your taxable gain.
Gain on the sale is figured by:
SELLING PRICE - SELLING EXPENSES = REALIZED AMOUNT - ADJUSTED BASIS = TAXABLE GAIN
Your basis in this home is equally important. Basis for an inherited home is equal to either the basis of the person from whom you inherited the property at the time of their passing or the alternative appraisal amount (as in your situation). If your husband and his siblings each received an equal share of the property than each of your basis' is equal to $29,333 ($88,000 / 3) before adding the cost of improvements, subtracting depreciation, etc. The figure you arrive at after additions and subtractions is called your adjusted basis. So if there were some improvements made that increase your basis by enough then it's possible that nobody will have any gain and you won't have any taxable income from this sale.
With this being a rental and there being three of you it can be a little bit tricky, so I do recommend that all three of you meet with a tax professional when you complete your tax returns so that they can go through everything with you and make sure that your returns are completed as accurately as possible.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)