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Someone I know inherited from their mother, along with two other siblings (split even 3 ways) a small amount of money and a house. Way under the amount that would be taxed.

They have split most of the cash in 2009, and couldn't sell the house right away so have rented it out.

I have a few questions if you don't mind and might know the answers. I would appreciate it.

1. The cash is tax free since it's so small. But do they have to claim it on their tax return anyway?


No.

2. The house - they will be paying tax on the net rental income. But what about when they sell it? Is that tax free just as the cash is? Is it a stepped up basis so that they do pay tax on the profit, if any, but that the basis is stepped up to the time of the Mother's death? If so, how is the basis at that time figured and proven?

Their starting basis is FMV as of the date of her death. When they looked into selling the house they should have gotten an idea of its FMV from the realtor. That's close enough IMO. For a starting point.

Someone needs to read up on rental property in IRS Publication 527 for details about the house going forward.

Phil
Rule Your Retirement Home Fool
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