House given to children

[oceanlovin'ea]

Several years ago client's parents put their house in the name of their son and daughter. Just transferred to their name. In 2013 son died and so now daughter inherits her brothers share of the house. Her original basis is 1/2 of the parents basis in the house. Her basis in the other half of the house is the FMV on his date of death.

The house has always been for sale but didn't sell until August of 2013. It sold for much less than either FMV or parents basis. She is holding note on sale....installment sale. Since no gain in sale of property, she will only report the interest received each year.

Since this was never a personal residence, do I consider this house as investment property or inherited property. Does it make a difference if I report this as inherited property or investment property? It is a little of both.

Linda, EA

[Koss]

Basis

Where on the tax forms do you have to indicate whether it is inherited property or investment property?

I think it can be both. If you inherit stock and then hold it, is that inherited property or investment property? What difference does it make? Either way, it is a capital asset.

I realize that in a way I am parroting your original question: What difference does it make?

I don't think there is a difference, as long as you are using the correct basis, and as long as you accurately report the sale. Have you considered that perhaps she should opt out of the installment sale method?

I haven't done an installment sale in a while, so maybe I'm missing something. But I suspect that your question about how to characterize the asset is flowing from a field that you have to select in your software. Is the characterization going to appear somewhere on the tax return?

BMK

[oceanlovin'ea]

opt out

yes, we will opt out of installment sale because there was no gain on the sale of the property. She will only have to report the interest received.

In the software, where you put in the date purchased you can put inherited long term. So I just used the original date that they received the house.

Thanks for your input. Got really bogged down since I posted question.

Linda, EA

[ChEAr$]

If it's inherited property, and you've determine correct basis and it sold for less than that considering sale expenss added to basis, there is a capital loss, no?

[oceanlovin'ea]

yes

Yes, there is a capital loss for many years.

Linda, EA