To determine if the sale of inherited property is taxable, you must first determine the taxpayer’s basis in the property.
The basis of property inherited from a decedent dying prior to January 1st of the current tax year is generally the fair market value (FMV) of the property on the date of the decedent’s death.
The basis of property inherited from a decedent dying during the current tax year is generally the lesser of:
- The adjusted basis of the decedent, or
- The fair market value of the property at the date of the decedent’s death
The holding period begins on the date of the decedent’s death. Inherited property is considered long term property. If you sell or dispose of inherited property that is a capital asset, you have a long-term gain or loss from property held for more than 1 year, regardless of how long you held the property.
To report the sale of inherited property in the tax program, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Capital Gain/Loss (Sch. D)
- Select ‘New’
- Input the Description of Property
- Input the Date Acquired and select ‘Inherited – Long – Term’
- Input the Date Sold, Sales Price and Cost (Fair Market Value on the date of the decedent’s death)
NOTE: This is a guide on entering the sale of inherited property into the Keystone Tax Solutions Pro program. This is not intended as tax advice.