I Sold Something I Inherited
Generally, if you inherit property, you receive a tax basis that is
equal to the property's value at the date of death (or six months
later, if the executor elected the alternate valuation date).
When you sell property that had been inherited, you recognize gain or
loss based on the variation from the tax basis.
For example: You inherited land from Uncle Frank, which he purchased
for $1,000 but was worth $8,000 at his death. You sell the land for
$8,100, less $500 in commissions and other costs of sale. Your net
selling price is $8,100 - 500 = $7,600. Your tax basis is the estate
valuation of $8,000. You have a loss of $400 on the sale. (Note: If
Uncle Frank had paid $10,000 for the land, your sale would still
result in the same $400 loss. What he paid for the property is not
relevant if it passes to you upon his death.)
Under the tax law as it stands now, any gain or loss would be
considered as a gain or loss from an asset held for more than twelve
months but not more than eighteen months. This means that any gain
would be taxed at a rate not to exceed 28%. However, there is a
proposed law that will treat such gains or losses as being from assets
held for more than eighteen months, meaning that gains would be taxed
at either a 10% or 20% rate, depending on your tax bracket.
