Inherited property sold at loss - deductible as a LTCL?

[Guest]

Is the home I inherited from my mother sold at a loss deductible on a Schedule D? I understand the FMV gets what is called the stepped up basis (FMV at date of death). The property was never a rental ...was mom's residence. When sold a few months after her passing it was sold. With the commission paid the realtor and expenses paid to fix it up before selling the net is a loss on the deal. I know I got pretty much something for nothing but just as wondering whether the difference from FMV and net proceeds would be deductible as a loss. Any help from a pro would be appreciated.

[ED SMITH]

No losses can be claimed on personal property. You are lucky that your mother did not make the mistake that so many people do transferring title (a gift) to their children. Had she done that, you probably would have paid capital gains. In any event, you must have come out with a good chunk of change.

[Bees Knees]

I disagree

It depends. IRS Pub 559 says the following:

Sale of decedent’s residence. If the estate
is the legal owner of a decedent’s residence and
the personal representative sells it in the course
of administration, the tax treatment of gain or
loss depends on how the estate holds or uses
the former residence. For example, if, as the
personal representative, you intend to realize
the value of the house through sale, the resi-
dence is a capital asset held for investment and
gain or loss is capital gain or loss (which may be
deductible). This is the case even though it was
the decedent's personal residence and even if
you did not rent it out. If, however, the house is
not held for business or investment use (for
example, if you intend to permit a beneficiary to
live in the residence rent-free and then distribute
it to the beneficiary to live in), and you later
decide to sell the residence without first converting
it to business or investment use, any gain
is capital gain, but a loss is not deductible.

[oceanlovin'ea]

I have always thought that if you inherited property and sold it, it was treated as investment property. It was not your personal property. You don't intend to live in it or use it for personal use of any kind. If not personal property, it is investment property.

If you had inherited stocks, that would be considered investment property.

Linda F

[DaveO]

Agree with Bees and Ocean Lovin

The rule here is if the house will sell for less than FMV, sell it and take the loss. If it will sell for more, move into it for 2 years sell it and exclude the gain.

[jimmcg]

It all comes down to intent. If the intent is personal use then one rule applies; if investment use then another rule. Whether you prevail in winning the intent argument for investment use depends upon how well you document your intent and/or present and argue your case before the service.

[Burke]

I have done many of these over the years. If the house is sold shortly after death, and it is never used by any of the benes-heirs, then there is usually a deductible loss due to expenses of sale. Never had one questioned.

[Kram BergGold]

Fix up expenses

Assuming that after mom died the house was not used by anyone then the non improvement type fix up expenses would be a Schedule A deduction for investing, the improvements would be an addition to basis. Carrying charges like taxes,insurance, utilities would be either 2% deductions as well. If after mom died someone used the house to sleep in then you can't take a loss.

[ChEAr$]

It's not intent

It all comes down to intent. If the intent is personal use then one rule applies; if investment use then another rule. Whether you prevail in winning the intent argument for investment use depends upon how well you document your intent and/or present and argue your case before the service.

A house inherited IS capital in nature. Therefore any gain/loss is reportable just that way.
Gains are taxable and losses allowed,. Remember of course, that even though house is
sold under a year, it's still long term property.

[Bees Knees]

Yes it is intent. Read the cited Pub again:

For example, if, as the
personal representative, you intend to realize
the value of the house through sale...

If, however, the house is
not held for business or investment use (for
example, if you intend to permit a beneficiary to
live in the residence rent-free and then distribute
it to the beneficiary to live in),...

That implies you don't actually have to have a beneficiary live in the house to disqualify LTC loss treatment. If you merely intend the house to be used by a beneficiary, it is no longer investment property.

That rule carries over to other aspects of investment property law as well. If you buy land up north and intend to use it as a camp site for your personal vacations, but never do, and 2 years later you finally decide to sell it at a loss because you never used it as a camp site, the loss would not be deductible because you never intended for it to be investment property.

Intent is very important when it comes to investment property.

[bigbear]

Thanks for all the opinons. It seems overwhelming that a loss is permissible. Appreciate it.

Is the home I inherited from my mother sold at a loss deductible on a Schedule D? I understand the FMV gets what is called the stepped up basis (FMV at date of death). The property was never a rental ...was mom's residence. When sold a few months after her passing it was sold. With the commission paid the realtor and expenses paid to fix it up before selling the net is a loss on the deal. I know I got pretty much something for nothing but just as wondering whether the difference from FMV and net proceeds would be deductible as a loss. Any help from a pro would be appreciated.