does money inherited by the sale of parent's house have to be reported as income?

Question

my friend's mother in law died in 2005 she wrote a will saying the house would be sold upon her death with proceeds going to her 4 daughters. the house was sold in 2006 does the money my friend's wife received from the sale of the house have to be reported on their 2006 tax return? is it considered ordinary income or inheritence or what thanks for reading this

hello the proceeds have already been distributed and in her posession the sale was in the state of california

Answer 1

The estate MAY have to pay taxes on the gain before the proceeds are distributed. The heirs NEVER pay Federal tax on an inheritance. If they had inherited the house and later sold it, they would have a gain in the amount the sale price exceeded the Fair Market Value on the date of death. Some STATES have an inheritance tax. This is separate from income tax so it in not income at all. Without knowing what state is involved, I can't comment on state inheritance taxes.

Answer 2

Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if you sell the property, you must pay tax on any gain on the sale. To determine if the sale of inherited property is taxable, you must first determine the basis (your cost) of the property. The basis of inherited property is generally the fair market value at the date of the decedent's death.

If you sell the property for more than your basis, you have a gain on the sale, which is reported on Form 1040, Schedule D Capital Gains and Losses.

Answer 3

My mother passed away I m on social security disability if the house is sold will it show as income and hurt my social security

Answer 4

Yes, if the price of sale was more than 10,000.00 yes, she does have to pay taxes on this. I just did this last week. Call 1-800hrblock

Answer 5

No their is no inheritance tax any more