Q: We just sold my wife’s deceased mother’s house and we got a 1099-S form that says gross proceeds were $525,000.
What amount do we pay taxes on? The money went directly into my wife’s living trust. We got a check from the closing in the amount of $434,000.
A: I’m sorry for your loss. If you sold the house within a year of your wife’s mother’s death, it’s possible that you will owe no taxes on the sale.
Let’s step back. Form 1099-S is merely the form that the closing agent sends to the seller of real estate that sets forth the sales price for the home. In this case, you sold the home for $525,000. That number only reflects the price the home sold for and does not indicate whether you made a profit or loss on the sale of the home.
If this was your home and you had purchased it for $500,000 and sold it for $525,000 and had closing costs of $25,000, you still would have no profit on the sale of the home and probably would have no tax to pay the IRS.
However, if you inherit a home, you would pay tax on the difference between the value of the home at the time the person died and the sales price of the home when you sold it.
You know the sales price for the home, but you may or may not know the value of the home at the time your wife’s mother died. Generally, if the property is sold within a year of the time of death, that sales price is a good indication of the value of the home.
If you sold it a couple of years after she died, you would have to determine a value for the home at the time of her death and then factor in any costs to sell the home and, perhaps, any improvements you made to the home to get it set for sale. A new roof, for instance, could be added to the cost basis of the home.
For more information, talk to an accountant, estate attorney, or enrolled agent and for general information you can go to the IRS website at www.irs.gov. One publication that is useful in reviewing the factors that affect the value of a home is Publication 523 (http://www.irs.gov/publications/p523/index.html).
Published: Mar 27, 2008