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Frequently Asked Tax Questions

Interest, Dividends, Other Types of Income - Gifts & Inheritances

  1. Is the money received from the sale of inherited property considered taxable income?

Rev. date: 10/29/2013

Is the money received from the sale of inherited property considered taxable income?

To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:
If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.
Report the sale on Schedule D (Form 1040) (PDF), Capital Gains and Losses, and on Form 8949 (PDF), Sales and other Dispositions of Capital Assets:
For estates of decedents who died in 2010, basis is generally determined as described above.  However, the executor of a decedent who died in 2010 may elect out of the estate tax rules for 2010 and use the modified carryover of basis rules. 
Under this special election, the basis of property inherited from a decedent who died during 2010 is generally the lesser of:
However, the executor of the decedent’s estate may increase the basis of certain property that beneficiaries acquire from a decedent by up to $1.3 million, but no more than the fair market value of the property at the date of the decedent’s death.  The executor may also increase the basis of certain property that the surviving spouse acquires from a decedent by up to $3 million, but no more than the fair market value of the property at the date of the decedent’s death.  The executor of the decedent’s estate is required to provide a statement to all heirs listing the decedent’s basis in the property, the fair market value of the property on the date of the decedent’s death, and the additional basis allocated to the property.  Contact the executor to determine what the basis of the asset is.
Report the sale on Schedule D (Form 1040), Capital Gains and Losses, and on Form 8949, Sales and other Dispositions of Capital Assets, as described above.
Additional Information
Tax Topic 703, Basis of Assets