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In partnership with
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Every Saturday, we open the mailbag, pour some strong coffee, and tackle the tax questions keeping America awake at 2 a.m. Here’s this week’s question:
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If I inherit 33% of a parent’s home and we sell it, do I report the full sale on my tax return or only my share?
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When you inherit a share of a property, you report only your portion of the sale, not the entire amount. Even if the 1099-S is issued under just one sibling’s Social Security number, each person reports only their own share of the proceeds and any capital gain on their individual return. In your case, that means you include 33 percent of the sale on Form 8949 and Schedule D.
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Here’s the good news: You get a stepped-up basis.
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Your basis becomes the fair market value of your parent’s home on the date of their death, allocated to your one-third share. Since proceeds aren’t “income,” only the gain (sale price minus your stepped-up basis and selling costs) is taxable. For most heirs, the step-up makes the gain very small (sometimes zero).
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And what happens tax-wise when I inherit my parent’s IRA?
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Inherited IRA rules depend on whether the account was a Traditional or Roth, but either way, non-spouse beneficiaries face different rules than surviving spouses.
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Because you’re a non-spouse, you can’t treat the account as your own. Rolling it into an IRA in your name means you now have an inherited IRA, and distributions are generally taxable if it was a Traditional IRA. Roth IRAs may still be tax-free depending on how long your parent held the account.
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In most cases, inherited IRAs must be fully distributed within 10 years, and withdrawals from an inherited Traditional IRA are taxable income to you.
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PS: If you have decided that reading about tax regulations on a weekend is a form of mild torture you no longer wish to endure, you can click here to opt out. We’ll miss you, but we won’t hold a grudge.
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