January 12, 2015 in Taxes

Must I report to the IRS the sale of inherited devalued property to Florida county?

Dear Tax Talk,

I inherited one-fifth of a parcel of vacant land in Florida. The property should have had a fair market value of $21,000. However, it was declared a flood zone buffer by the county wetlands division and nothing could ever be built on it.

The estate received about $7,890 for the property from the Florida county. As 1 of 5 beneficiaries of the property, the county issued me a 1099 for $1,700. Do I have to report the money from the sale of inherited property to the IRS?

— Jade

Dear Jade,

Yes, you are going to have to report the $1,700 that was on the Form 1099 issued by the county. However, let’s review the tax ramifications to you when you do report the sale.

The general rule is that when you inherit the property, you receive a step-up in basis to the date-of-death value, which is used to calculate your gain or loss on the sale.

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Let’s go through your situation and what you need to do:

I hope this information helps you report the transaction correctly. Thank you for the great question and all the best to you.

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