Inheritances

[SueBaby]

I have a client that inherit a house and one inherit land. The house she got $25,635 and the land was 1/4 of his was only $7430. Even it is inherited does that go on sch D? They only got that money when sold nothing else.
In the Tax Book it doesn't say too much about this on page 3-19. Never had anyone with inherit money on house nor land.
Thank you for any info on this matter.

[Burke]

I have a client that inherit a house and one inherit land. The house she got $25,635 and the land was 1/4 of his was only $7430. Even it is inherited does that go on sch D? They only got that money when sold nothing else.
In the Tax Book it doesn't say too much about this on page 3-19. Never had anyone with inherit money on house nor land.
Thank you for any info on this matter.

Both go on Sche D. Basis is FMV at date of death + expense of sale for both. Both are long-term gain. Sales price is what goes on Sche D, not amount of money they got.

[Chief]

Don't be too fast

to put this on Sch D. Check with the attorney that handled the estate. Has the attorney given any papers on the inheritance of the property. It could well be a tax exempt transfer of property for your clients.

[SueBaby]

to put this on Sch D. Check with the attorney that handled the estate. Has the attorney given any papers on the inheritance of the property. It could well be a tax exempt transfer of property for your clients.

Yes, they all got paper work and the whole amount divided was $82,500. That was the money they got from the estate. Don't know about inherit and put it on sch D or not and what. Thank you

[Gretel]

Seems like estate reported sale and will do K-1's, which then will need to be reported on 1040. K-1 will show if there is taxable income or loss or deductions to be taken on 1040.

[Burke]

Yes, they all got paper work and the whole amount divided was $82,500. That was the money they got from the estate. Don't know about inherit and put it on sch D or not and what. Thank you

The whole issue is very unclear as you subsequently describe it. What was the "paperwork?" Did they get K-1's from the estate? That tells you what to do with the reportable items. Sounds like they personally did not sell the properties themselves after inheriting them. You need to contact the executor of the estate for the proper documents to do the tax returns.

[SueBaby]

The whole issue is very unclear as you subsequently describe it. What was the "paperwork?" Did they get K-1's from the estate? That tells you what to do with the reportable items. Sounds like they personally did not sell the properties themselves after inheriting them. You need to contact the executor of the estate for the proper documents to do the tax returns.

The paperwork just divided the money up amoung the kids and grandkids evenly. They just received what was sold by the parents that is all. So the parents will use that on their taxes not the kids or grandkids----right? Because they did not sell the house or land just received the money. My question: what do I do with that money? Sch D or nothing? Never had an inherit problem before just selling.

[Gretel]

SueBaby, you need to contact the administrator of the estate, as was mentioned before. The administrator should have filed or will file a 1041 with K-1's. These K-1's will go on the 1040. The amount of money they received is irrelevant.

[ChEAr$]

What?

The paperwork just divided the money up amoung the kids and grandkids evenly. They just received what was sold by the parents that is all. So the parents will use that on their taxes not the kids or grandkids----right? Because they did not sell the house or land just received the money. My question: what do I do with that money? Sch D or nothing? Never had an inherit problem before just selling.

You mean the parents aren't even dead yet? (You spoke of the issue being one of
inheritances, which occurs only after death!)

If the parents sold a house and split the proceeds up, it's their problem, not the kids'.

[Gretel]

Thanks, Harlan, for waking me up.

[gbroiles]

Inheritance

I agree with the others who suggest that you look for a K-1 to guide your reporting.

Generally speaking, if your client received real property as an inheritance and later sold the property, then the disposition/sale of the property should be reported on Schedule D. So, if your client inherited a house, then sold the house, the sale would be reported on Schedule D.

On the other hand, if someone died, the decedent's estate or trust (acting through the executor/administrator/trustee) sold the decedent's house, and your client received a check for their share of the inheritance, then you don't have anything to put on Schedule D because your client hasn't disposed of any property.

Also, it might be helpful to review 26 USC 102 <http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000102----000-.html> for the background regarding the taxation of gifts and inheritances.

[SueBaby]

I agree with the others who suggest that you look for a K-1 to guide your reporting.

Generally speaking, if your client received real property as an inheritance and later sold the property, then the disposition/sale of the property should be reported on Schedule D. So, if your client inherited a house, then sold the house, the sale would be reported on Schedule D.

On the other hand, if someone died, the decedent's estate or trust (acting through the executor/administrator/trustee) sold the decedent's house, and your client received a check for their share of the inheritance, then you don't have anything to put on Schedule D because your client hasn't disposed of any property.

Also, it might be helpful to review 26 USC 102 <http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000102----000-.html> for the background regarding the taxation of gifts and inheritances.

Its like this: the Dad died, Mom sold house and land and divided the money up with kids and grandkids. My clients one has $25,000 for house and the other $7,500 for the land divided up equal amoungst them. So what to do with the money? Nothing? They did not own anything nor sell anything----just received the money. Never had this problem and pulling my hair out to find the solution. Paper from lawyer just states what everyone got equal and Mom sold it. Thanks for any info on this matter!!!!!

[gbroiles]

Inheritance

Sounds to me like your clients don't have anything to do - the money received was either a gift or an inheritance, neither of which is included in gross income.

It is relatively unusual in my part of the country (SF Bay, CA) for any gifts to be made from Dad's estate to anyone other than Mom, during Mom's lifetime - especially if it is a non-taxable estate. It is possible that the attorney has counseled Mom to make a disclaimer of those assets, and that they then passed to the kids/grandkids as a result of the disclaimer. Or, it might be that Mom inherited the properties, and decided to make gifts to her family.

Either way, I think Mom may have some paperwork to do (e.g., a disclaimer, and/or some 709's, and a Schedule D for whatever taxpayer sold the real estate) but your clients don't have to do anything other than decide what color they want their new car to be.

Hopefully Mom is getting good advice from her attorney/tax person - it sounds like a relatively unusual situation to me, but it may be an unusual family, or perhaps local practice is different where you are. In this area, the fact pattern you describe would make me concerned that the attorney was giving bad advice and/or Mom was refusing to listen to the advice - but maybe the facts you describe are what Mom and Dad intended. Either way, that part is done, now it's just a matter of reporting what happened. Mom is obligated to report the sales on her 1040 or on the 1041 for the estate/trust; and to issue a K-1 from the estate/trust to the beneficiaries as necessary. If your clients didn't get K-1's and don't have any reason to believe that they received otherwise reportable income (e.g., a letter from Mom saying "Here's the $24,000 you inherited and $1,000 of interest because the inheritance sat in the bank for awhile") then there's nothing to do on their 1040's.