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I have a question on the tax side of splitting up house proceeds from basically an inheritance (actually from property gifted to 4 siblings

Q) I have a question on the tax side of splitting up house proceeds from basically an inheritance (actually from property gifted to 4 siblings by the last wife of the father of those siblings after his death).

Basically, this “inheritance” to 4 siblings involved preparing the property for sale, and really only 1 of the siblings could afford to pay that cost up front and so will need to be reimbursed for that. The question is when this reimbursement should occur: (A) After the sale in which all siblings get the same percentage, or (B) At the time of Sale.

I think a lot of it is basically what can be deducted and when (and how to make sure it is clear with the IRS, e.g. what forms may be needed and how to prove such deductions), and basically to see if the situation is or is not how I describe below.

For calculating multiplicities sake: if the house sells for $120,000 and if total up-front expenses end up $20,000…

Option A

Split up proceeds evenly

Amount received Deductions Amount taxed
$30,000 – $20,000 $10,000 Sibling 1
$30,000 $30,000 Sibling 2
$30,000 $30,000 Sibling 3
$30,000 $30,000 Sibling 4

Or would this actually be more like this:
Amount received Amount taxed Deductions
$30,000 $30,000 Sibling 1 – $20,000
$30,000 $30,000 Sibling 2
$30,000 $30,000 Sibling 3
$30,000 $30,000 Sibling 4

In addition, after these numbers Sibling 1 is paid back that $20,000

Option B

Split up proceeds including deductions paid to Sibling 1 up-front.

Amount received Deductions Amount taxed
$45,000 – $20,000 $25,000 Sibling 1
$25,000 $25,000 Sibling 2
$25,000 $25,000 Sibling 3
$25,000 $25,000 Sibling 4

A) Please refer your questions to a Real Estate closing attorney.

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153 Responses to Click to Tell Us Your Experience At Your Local Tax Office

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