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Ask the Expert: Selling an inherited house

If you sell an inherited home at a loss, can you report this loss on your taxes? My Dad passed away in 2018 and left the house to me, my brother and sister. The house was vacant until we sold it in 2020 at a loss.

Based on what you say, you and your siblings can each claim a one-third share of the loss on your tax returns.

Please note, nobody can claim a tax write-off for selling their primary residence at a loss! But you can claim a capital loss on the sale of an inherited house if you meet these conditions:

1. You sold it in an arm's length transaction. (Even if you sold to a friend, it was for a market price.)

2. You sold it to an "unrelated" party (not to the estate's executor or an estate beneficiary).

3. You didn't use it for personal purposes or rental income before the sale.

Your capital gain (or loss) is the difference between the market value of the house when your father died, plus any capital improvements you made to it, and the sale price minus sales-related fees. Your real estate broker can recommend an appraiser to estimate its 2018 fair market value.

You'll each report your share of the profit or loss on Form 8949. Your "basis" is your share of the 2018 fair market value. For "date acquird," write "Inherited."

If the house was worth $300,000 when your father died, for example, you each have a $100,000 "basis." If you netted $450,000 on the sale, you each have a $50,000 capital gain. If you netted $290,000 on the sale, you each have a $3,333 capital loss.

The bottom line

Under certain conditions, you can claim a capital loss on the sale of an inherited house.

More information

nwsdy.li/IRSsaleofhomeGainsLosses

http://nwsdy.li/IRSinheritancetaxable

CORRECTION: The capital loss for each of three people who inherit a house valued at $300,000 and later sell it for $290,000 would be $3,333. The original amount in this column was incorrect because of a mathematical error.

TO ASK THE EXPERT Send questions to act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.

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