New client (TP) comes in. TP tells me last parent died & all 4 siblings received house & sell it 2 months after death. TP received 1099-S (issued by law firm) which reported 31% more in box 2 then TP actually received. I suggested TP obtain a itemized document on the where the difference went. I also suggested TP contact other siblings on how their tax preparer handle this. TP emailed me telling me one sibling reported box 2 of 1099-S (all siblings 1099-S was also 31% higher) on their tax return and not concerned because sibling's tax preparer told sibling non-taxable. Am I missing something? Its my understanding the cost basis for the sibling is the market value of the house on the day the last parent died plus any related expenses paid out by the siblings with adds to their cost basis. if the house is sold for a gain, the gain is subject to LT cap gains.
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You are correct. The 1099-S shows the gross sales proceeds. They got less than that due to selling expenses. You need the HUD-1 to determine which of those expenses may be used to increase their cost basis (which is the FMV at date of death.) They may have a loss, which is often the case. The other tax preparer took the easy way out, apparently, and just listed the basis the same as the gross proceeds. He didn't do the client any favor.
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