Do we pay taxes on a loss

by Rob Seltzer, CPA, PFS

My sister and I recently sold our parents' home, which they willed to us. The house was appraised at $219,000, but we could only get $189,000 in today's market. Do we have any capital gains to declare on our taxes--or do we even have to declare the sale at all?

For the sake of answering the question, I will assume that you are stating that the house was appraised at $219,000 upon your parent's death. But regardless of whether that is true or not, you will have to report the sale.

What will matter is what the value was on your parent's date of death. That value, which is what I am assuming is the appraised value of $219,000, is what your tax basis is. So, in this example, you would have a taxable loss (not a gain) of $40,000. This loss would be increased by whatever closing costs were incurred in the sale, including commissions. This loss is a capital loss and is limited to $3,000 a year as an offset against ordinary income. This loss can also offset any capital gains that you have. Otherwise, the remainder gets carried forward indefinitely until it gets fully utilized.

Rob Seltzer is principal of Robert Seltzer, CPA, PFS, in Beverly Hills. You can reach him at (310) 278-9944.

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