The sale of an inherited home is a significant event that comes with its own set of tax implications and requirements. Understanding how to correctly enter Form 1099-S from a sale is crucial for accurate tax reporting and compliance.
Information required to report the sale
Typically, you will receive Form 1099-S reporting the sale of an inherited property which will show your sales proceeds. You will also need to determine your basis in the property to account for the sale correctly.
- The basis of inherited property is generally the fair market value (FMV) at the time of the original owner’s death.
For instance, consider a scenario where you inherit a house that was appraised at $500,000 at the time of your father’s death in 2021. This amount becomes your cost basis, even if the original purchase price was $120,000 two decades earlier. If you sell the property three years later for $495,000, you will report a $5,000 loss on your tax return for 2024.
- Alternatively, there are rare situations where the basis is the FMV of the property on the alternate valuation date (six months after the date of death). This approach only applies if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return.
Check with the estate’s executor to verify what basis should be used in your situation and to obtain an accurate FMV for the property.
Entering the sale in the software
Once you have the 1099-S in hand and have determined the basis, you’re ready to report the sale on your tax return. The sale of inherited property is entered by following the menu path: Income < Common Income > Stocks or Investments Sold (1099-B).
1. For the type of investment sold choose “Other” and then Save and Continue.
2. Indicate who owned the investment, choose “One at a time” and then Save and Continue.
3. Mark that you received Form 1099-S and then Save and Continue.
4. Now it’s time to enter the details of the sale. For the investment description, enter a description of the type of home you are selling and the address from Box 3 of your Form 1099-S. Answer “No” to “Did you acquire this investment on a specific date?” and select “Inherited”. Enter the date the property was sold.
No. Form 1099-S reports your gross sales proceeds (the total sale price), not your taxable profit. To calculate whether you owe tax, you subtract your cost basis (the Fair Market Value at the date of death) and selling expenses (such as realtor commissions and closing fees) from the gross proceeds. You only owe tax if the proceeds exceed your total basis.
If the sale price is lower than the stepped-up basis plus selling costs, you have a capital loss. As long as you did not use the property as your primary personal residence, you can generally deduct this loss on your tax return. Capital losses can offset other capital gains and up to $3,000 of ordinary income per year, with any remaining loss carried forward to future years.
Under IRS rules, gains or losses on inherited property are automatically classified as long-term capital gains/losses, regardless of how long the deceased person owned the home or how quickly you sold it after inheriting it.
If multiple heirs inherited the property, each person only reports their proportional share of the sale.
If separate 1099-S forms were issued: Report the exact gross proceeds listed on your individual form.
If one 1099-S was issued for the entire amount under one SSN: That primary recipient must report their share on their return and issue Form 1099-S (or a Nominee statement) to the other siblings to report their respective split shares to the IRS.
Form 1099-S showing the gross proceeds.
A formal written appraisal or official probate document confirming the Fair Market Value on the decedent’s date of death (or alternate valuation date).
Settlement statements (Closing Disclosure / HUD-1) verifying all selling costs, legal fees, and closing expenses.
Suresh holds a Master of Commerce (M.Com) degree and is a dedicated personal finance researcher and writer. Combining his advanced academic background in commerce with deep industry research, he covers complex topics like taxation, banking systems, credit analysis, and personal finance strategies. As the founder of Tax Assistant (taxassistant.org), Suresh is committed to translating complicated financial guidelines and economic data into simple, accurate, and actionable educational resources for everyday readers.
