Is money received from the sale of inherited property considered taxable income?
Answer:
The taxability of money from the sale of inherited property depends on your basis in the property. The basis is generally determined as follows:
- Fair Market Value (FMV) on the Date of Death:
- The basis is typically the FMV of the property on the date the decedent passed, regardless of whether an estate tax return (Form 706) is filed.
- Alternate Valuation Date:
- If the executor files Form 706 and elects to use an alternate valuation date, the FMV on that date becomes the basis. Refer to the Instructions for Form 706 for details.
For information on FMV at the time of death, consult the executor of the estate. Under certain circumstances, federal law requires the basis to align with the value determined for estate tax purposes. If you receive Schedule A of Form 8971 from the executor, you may need to report a basis consistent with the estate tax valuation. For more details, see Publication 559, Survivors, Executors, and Administrators.
If you or your spouse gave the property to the decedent within one year before their death, special rules apply. See Publication 551, Basis of Assets.
How to Report the Sale:
- Use Schedule D (Form 1040), Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets.
- If Sold for More than the Basis: The difference is a taxable gain.