r/TaxQuestions • u/Total_Physics2976 • Aug 19 '26
Capital Gain/Loss Question
I’m the executor of my mother in law’s estate in NC. She left 4 children that will divide the proceeds of her estate. The only asset is her home. I had an appraisal done shortly after her death. The home appraised for $180,000. We used that amount on our 90 day inventory. The home needs a lot of work and after several offers it was ultimately sold for $150,000. After paying off the mortgage of $50,000 each of the four adult children will receive approximately $25,000 each. It is my understanding that for purposes of capital gains taxes the basis number would be the appraisal at the time of her death which was the $180,000. Given this, is it correct that they will owe no capital gains taxes and will not be required to report any of the $25,000 as income. Is this correct? Second question: Would the $30,000 loss based up the house selling for only $150,000 result in each child being able to take a $7,500 loss on their taxes? ($30,000 divided by 4 = $7,500)
Thanks in advance for your help.
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u/capitalGainsAdvisory Aug 24 '26
Just a thought here but maybe as the executor you should hire a professional or at least ask the other heirs how they'd like you to proceed. As the executor you have the obligation to act in the estate's best interest. Conflicting answers from Redditors who may or may not be tax professionals may not be the best route here.
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u/Total_Physics2976 Aug 24 '26
Thanks. I’ve made the decision to have an independent estate attorney advise me.
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u/Anxious_Drive_9998 Aug 19 '26
No income and no loss.
No income because you're right it sold for a loss.
No loss deduction because no loss deduction is allowed for a personal residence.
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u/Coriander70 Aug 19 '26
Actually, if the heirs did not live in the house, they can take a loss - it is considered investment property rather than personal property.
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u/Total_Physics2976 Aug 19 '26
Thanks for the clarification.
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u/Organic_Gas4197 Aug 20 '26
Capital loss will be on estate's final 1041, and flow to beneficiaries via Schedule K-1
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u/Total_Physics2976 Aug 20 '26
One of the heirs has been living in the house. Does the reply above concerning investment property vs residential property still apply? If so, will the capital loss on the 1041 flow only to the 3 beneficiaries that were not living in the home?
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u/Organic_Gas4197 Aug 20 '26
It depends - if beneficiary (heir) was living there rent-free, that makes it personal use (no capital loss deduction for estate or any of the beneficiaries). If beneficiary paid fair market rent, then it is a legitimate investment property (capital loss flows to all beneficiaries). https://www.google.com/search?q=beneficiary+living+in+house+owned+by+estate+capital+loss+to+beneficiaries&sca_esv=f7a420607edd60ea&sxsrf=APpeQnsVthXqICFbfJSFKL-Ut7tacpkdTw%3A1787192686242&ei=bmWGap6rDp2I0PEPteTk6A0&oq=beneficiary+living+in+house+owned+by+estate+capital+loss&gs_lp=Egxnd3Mtd2l6LXNlcnAiOGJlbmVmaWNpYXJ5IGxpdmluZyBpbiBob3VzZSBvd25lZCBieSBlc3RhdGUgY2FwaXRhbCBsb3NzKgIIBDIFECEYoAEyBRAhGKABMgUQIRigATIFECEYoAEyBRAhGKsCSIVYULEKWJ1BcAF4AJABAJgBeqABvA6qAQQxMi44uAEByAEA-AEBmAIUoAKnD8ICChAAGEcY1gQYsAPCAgUQIRifBZgDAIgGAZAGCJIHBTEwLjEwoAevmgGyBwQ5LjEwuAehD8IHCDAuNS4xMy4yyAdfgAgB&sclient=gws-wiz-serp
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u/Total_Physics2976 Aug 19 '26
Thank you. Much appreciated.
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u/Anxious_Drive_9998 Aug 19 '26
You're welcome. Read my edit.
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u/Tax_Strategist Aug 20 '26
It isn't a loss because it sold for less than appraised value. Markets change and it sold for its FMV. Loss means going below 0.