To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:
- The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
- The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the Instructions for Form 706.
For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. Also, note that in 2015, Congress passed a new law that, in certain circumstances, requires the recipient’s basis in certain inherited property to be consistent with the value of the property as finally determined for Federal estate tax purposes. Check What's New - Estate and Gift Tax for updates on final rules being promulgated to implement the new law.
If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.
Report the sale on Schedule D (Form 1040), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets:
- If you sell the property for more than your basis, you have a taxable gain.
- For information on how to report the sale on Schedule D, see Publication 550, Investment Income and Expenses.
Under the new law passed by Congress in 2015, an accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for Federal estate tax purposes. Again, check What's New - Estate and Gift Tax for updates on final rules being promulgated to implement the new law.
For estates of decedents who died in 2010, basis is generally determined as described above. However, the executor of a decedent who died in 2010 may elect out of the Federal estate tax rules for 2010 and use the modified carryover of basis rules.
Under this special election, the basis of property inherited from a decedent who died during 2010 is generally the lesser of:
- The adjusted basis of the decedent, or
- The FMV of the property at the date of the decedent’s death.
Under this special election for estates of decedents who died in 2010, the executor of the decedent’s estate may increase the basis of certain property that beneficiaries acquire from a decedent by up to $1.3 million (plus certain unused built-in losses and loss carryovers, if applicable), but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor may also increase the basis of certain property that the surviving spouse acquires from a decedent by up to an additional $3 million, but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor of the decedent’s estate is required to provide a statement to all heirs listing the decedent’s basis in the property, the FMV of the property on the date of the decedent’s death, and the additional basis allocated to the property. Contact the executor to determine what the basis of the asset is.
No, but your mother may be required to report this transaction to the IRS as a taxable gift to you. Generally, a taxable gift is any property transferred for less than adequate and full consideration.
Generally, an individual must file a gift tax return (Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return) for the year of the gift, if any of the following apply:
- The individual gave gifts to at least one person (other than his or her spouse) that are more than the annual exclusion amount for the year. The annual exclusion amount for 2018 and 2019 is $15,000.
- The individual and his or her spouse are splitting all gifts made by each other during the calendar year. An individual may make a gift of the individual’s own property but treat the gift as having been made half by the individual and half by his or her spouse for Federal gift tax purposes, but only if both the individual and his or her spouse file a gift tax return (Form 709) consenting to this treatment for all gifts made during the calendar year. See Instructions for Form 709 for exceptions to consenting spouse’s filing requirements.
- The individual gave someone (other than his or her spouse) a gift of a future interest that the donee cannot actually possess, enjoy, or receive income from until some time in the future.
- The individual gave his or her spouse an interest in property that will end by some future event.
Note: If any of the above conditions apply, that individual must file a gift tax return (Form 709) even if a gift tax is not payable. See the Instructions for Form 709 and Publication 559, Survivors, Executors, and Administrators for additional information on gifts.