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Back in June 2020 my mother passed and left me with two documents, a Last Will and Testament and a Transfer on Death Deed that applied to her home transferring her interest in the property to me.

I consulted an attorney about how I needed to go about selling the property and what the Transfer on Death Deed meant. He told me that the transfer document effectively takes the real property out of the will and since it had previously been recorded by the County Recorder's Office, that I was now the legal owner of the property and could sell it at anytime. I subsequently sold the property, paid off the remaining mortgage and realtor fees and ended up with a net amount in cash.

The rest of the estate, which consisted of a small amount cash in a bank account, personal items which were sold was evenly divided between myself and my sister who was listed in the will. The total was about $4500 altogether. I understand that is well under the Estate Tax threshold.

My question is about the proceeds from the home sale. Is this taxable? If so, how is it taxed and where is it reported on my 2020 taxes?

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  • Has this house been your primary residence for any time period in the past few years?
    – yoozer8
    Dec 1, 2020 at 19:45
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    This is more a question about Indiana tax law and not about personal finance. When property (not just real property, but stocks etc too) is passed through a will, the beneficiary's basis is the fair market value of the property, and so the proceeds of the subsequent sale are taxable income to the beneficiary only to the extent that the proceeds exceed this basis. What happens in the case of property passed through a Transfer upon Death deed depends on state law. Perhaps you should consult a tax lawyer instead of a general practitioner or real-estate lawyer. Dec 1, 2020 at 19:56
  • It was never my primary residence.
    – jwh20
    Dec 1, 2020 at 20:06

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Disclaimer, I am no lawyer and found this information online. This is consistent with information that I have read on the subject.

The cost basis for the property is "stepped up", so it would use the value on the date of your mom's death as the cost basis.

So if your mom purchased the home for 50K, the value at the time of her passing was 125K, and you sold and received 130K, you may owe capital gains on 5K. Keep in mind you would have to sell at a higher price to received 130K due to closing costs. The "may" comes into question as a primary residence profit is not counted as capital gains if some pretty generous criteria is met. So you may want to consult a tax person if there is significant gain between the time of her passing and the time you sell.

Reference

Sorry for your loss.

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  • "it had previously been recorded by the County Recorder's Office" - doesn't the timing matter? This may be a gift with no step up if it occurred long ago. (To be clear, that wording sounds to me that it wasn't done as 'transfer on death', but well before.) Dec 2, 2020 at 22:03
  • I did consult an estate attorney on the Transfer on Death Deed which was prepared by another attorney and recorded in 2018. Basically this document does nothing while my mother was alive but upon death it immediately transferred her interest in the property to me. That it was already recorded meant that as soon as the recorder was aware of her death the transfer was effective on the date recorded on the death certificate. All this was not really part of my question.
    – jwh20
    Dec 11, 2020 at 13:44

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