sale of inherited house- how do you figure basis

[KittieB]

Client inherited house in June 2013 from her Mother and sold it December 2013. She did not live in it. Do you add any of the closing cost to the basis on inherited property. There was no appraisal done but the house was put on the market for sale ASAP. IT sold for $167000. I am using the sale price for the Basis.
My question is, do you ad any of the closing cost the cost basis. I can't find a clear answer in publication 551 Basis of Assets or the instructions for schedule D.
Her settlement charges is 11,278.00. Or should I just put the sale price and basis the same to report the sale. She didn't receive any 1099S.
Thank you
Kit

[FEDUKE404]

Answers

For any inherited property, the cost basis is generally the value of the property at the time of death. You should be able to find that number in probate records, recent tax bills, etc.

The sale is a separate event. Like any other sale, the allowable costs of the sale can be used to reduce the potential taxable gain.

Whatever happened at the sale in no way impacts the already established cost basis. There may be some additions to the cost basis if capital improvements were made between the date of death and the date of sale, but that appears unlikely from your post.

Due to the reasonably short amount of time between death and sale of the property, it is unlikely there will be any (potentially) taxable gain when all the dust has settled. (There likely will be a net loss.)

FE

I may have misspoken about handling costs of the sale. At one time (in the gloomy past?) IIRC the Sch D entries were something like "adjusted sales cost" or something along that line. That would reduce the sales cost and potential taxable gain by the amount of the allowable sales costs. Now it appears even the sales costs are figured into the cost basis, perhaps so the IRS can better track the gross proceeds?? Who knows? In any case, the net overall effect is the same. Sorry for my brain breeze.

[BP.]

can't find a clear answer in publication 551

Try Pub 550; see index for Inherited Property section.

[Burke]

Client inherited house in June 2013 from her Mother and sold it December 2013. She did not live in it. Do you add any of the closing cost to the basis on inherited property. There was no appraisal done but the house was put on the market for sale ASAP. IT sold for $167000. I am using the sale price for the Basis.
My question is, do you ad any of the closing cost the cost basis. I can't find a clear answer in publication 551 Basis of Assets or the instructions for schedule D.
Her settlement charges is 11,278.00. Or should I just put the sale price and basis the same to report the sale. She didn't receive any 1099S. Thank you
Kit

You may be able to add certain closing costs to the basis. You need to examine the HUD-1 statement to find out what they are. Commissions to a realtor, attorney's fees, deed preparation, certain other administrative costs. You CANNOT use any amount deducted to pay off a mortgage or lien, but that is usually shown separately on Page 1. There may also be real estate taxes either on Page 2 (back taxes) or pro-rated taxes on Page 1 which can be deducted.

[Kram BergGold]

How I do it

You never know if there is a 1099-S out there. So I would report the gross sales price and then add settlement costs to the basis to show a deductible loss. Obviously not all costs on the Hud 1 can be used as an expense.

[John of PA]

The short answer is yes, you can add the closing cost to the basis and thus create a deductible loss. Keep in mind if the house is sold to a relative, the loss is not deductible (related party transaction).