How should I report income from the sale of inherited property?

October 6, 2003

Subject:  Tax Question

From:  Pat
Date:  Wed, 03 Sep 2003

Can you help me understand what and how I need to report income from a sale of property, in CA, that was owned by my grandmother and given to myself and four other children in her family?

Answer

Date:  Fri, 03 Oct 2003

I'll give you some information, but you should still consider hiring a tax return preparer to help you. I hope your family has done the right thing and worked with a lawyer to administer your grandmother's estate or trust. I'm assuming the title was in her name or under her trust and the property has been distributed to you after administration.

Each beneficiary's share of the sale proceeds and the tax basis of the property should be reported on his or her federal and California individual income tax returns. (Beneficiaries who are not California residents may have to file non-resident returns -- Form 540NR.) The tax basis of the property is the fair market value of the property as of your grandmother's date of death or the alternate valuation date, reported on your grandmother's federal estate tax return. If no estate tax return was filed, the tax basis is the fair market value as of your grandmother's date of death, which should be determined by an appraisal. The fair market value should be available from the trustee or executor. The acquisition date is your grandmother's date of death. Sales of inherited capital assets automatically qualify as long-term capital gains.

Good luck!
Mike Gray

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Michael Gray, CPA
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