How to Report Sale of Inherited Property on Tax Return: Form 8949 & Schedule D

ByDave
Report the sale of inherited property on Form 8949 and Schedule D. Your taxable gain is generally the sale proceeds minus selling expenses and your stepped-up basis, usually the property’s fair market value at the date of death. Inherited property sales are generally reported as long-term capital gains.
KEY
POINTS

  • Inherited property is generally taxed when you sell it for a gain.

  • Your basis is generally the property’s value at the owner’s death.

  • Selling close to that value may result in little or no taxable gain.

  • Inherited property is generally treated as a long-term capital asset.

  • Report the sale on Form 8949 and Schedule D.

  • Selling expenses can reduce your taxable gain.

Selling inherited property can result in a capital gain or loss on your federal tax return.

The tax outcome is based on the property’s tax basis and the proceeds from the sale.

Inherited property is generally treated as a long-term asset when calculating the gain or loss.

Can You Sell Inherited Property For A Loss?

Selling inherited property for less than its inherited value can create a tax loss—but whether you can deduct it depends on how the property was used. Find out how the rules work and what your potential loss could mean.

Calculate Your Inherited Property Loss

Is the Sale of Inherited Property Taxable?

When you sell inherited property, the IRS treats it as a capital asset sale.

So, whether you have a gain or loss depends on your basis.

The gross proceeds from the sale are reportable income for filing purposes.

IMPORTANT
If you sell inherited property for more than its basis, you generally have a taxable capital gain; if you sell it for less, you generally have a loss.

And inherited property is generally treated as long-term by law, regardless of how long you actually held it. As a result, any gain is generally treated as a long-term capital gain and may qualify for the applicable favorable capital-gains tax rates.

Determine Your Tax Basis in the Inherited Property

Generally, your basis in inherited property is its FMV on the decedent’s date of death.

Step What to Do
1. Identify the Property
Confirm the inherited property and your ownership share.
2. Find the Valuation Date
Usually the date of death. Use the alternate valuation date only if the estate properly elected it on Form 706.
3. Determine FMV
Find the property’s fair market value (FMV) on that valuation date.
4. Check Form 8971
If you received Schedule A (Form 8971), check the estate-tax value reported for your property. Certain beneficiaries must use that value as their initial basis.
5. Calculate Initial Basis
Generally, use the FMV at the applicable valuation date.
6. Add Improvements
Add qualifying capital improvements made after inheritance.
7. Subtract Reductions
Subtract depreciation, casualty losses, and other required adjustments.
8. Calculate Sale Gain/Loss
Subtract your adjusted basis and selling expenses from the sale price.
9. Keep Records
Keep the appraisal, Form 8971, estate records, improvement receipts, depreciation records, and closing statement.

If the estate elected an alternate valuation, you use the FMV on that date.

If estate tax returns were filed, use the value reported on Form 706 or Schedule A of Form 8971.

And in the situation with no federal estate tax return required, you can use a state inheritance tax appraisal if available.

Is There a Time Limit on Selling Inherited Property?

Inherited a house? Find out how long you can wait to sell, what probate can delay, and how timing may affect your taxes.

See The Selling Rules

Calculate Your Gain or Loss

Once you know the amount realized and your adjusted basis, compute the gain or loss:

  • Amount Realized: Includes cash and FMV of any other property or debt assumed by the buyer. For example, if the home sells for $300,000 and you pay $15,000 in commission, the amount realized is $285,000.
  • Adjusted Basis: Start with your stepped-up basis. Add costs you incurred after death to improve the property. Subtract any depreciation allowed or casualty losses claimed.
  • Gain or Loss: Subtract adjusted basis from amount realized.
EXAMPLE CALCULATION
Suppose a house was inherited at an FMV of $200,000. You later sell it for $300,000, pay $20,000 in selling costs, and make $10,000 of improvements.

Basis: $200,000 + $10,000 = $210,000
Amount realized: $300,000 − $20,000 = $280,000
Gain: $280,000 − $210,000 = $70,000

How to Report the Sale on Form 8949

Form 8949 is used to list each capital transaction.

For an inherited-property sale, you will generally report in Part II (Long-Term) because inherited assets are always long-term.

Form
8949
Department of the Treasury
Internal Revenue Service

Reporting an Inherited Property Sale on Form 8949

A quick-reference guide for listing your capital transaction correctly Prepared to help you complete Part II (Long-Term) of Form 8949 — see the walkthrough below
Reference Guide 2023 Tax Year Example
Topic: Sale of Inherited Real Property
Applies to: Part II — Long-Term
Inherited assets are always treated as long-term, regardless of how long you personally held the property. This means the sale is reported in Part II of Form 8949, not Part I — even if you sold the property shortly after inheriting it.
Part II Long-Term. Transactions involving capital assets you held more than 1 year are long-term.

Use the appropriate checkbox at the top of Part II depending on whether the basis for your inherited property was reported to the IRS on a Form 1099-B:

(D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS
(E) Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS
(F) Long-term transactions not reported to you on Form 1099-B — typical for a private sale of inherited real estate

In column (a), briefly describe the property (e.g. “Lot 5 Main St. (Inherited)”). In column (b), enter “INHERITED” in place of a purchase date — the IRS instructions specifically allow this to trigger the implied long-term holding period, so you don’t need to know the decedent’s original acquisition date.

Note: If the entire sale qualifies for the home-sale exclusion, Schedule D instructions may allow you to leave Form 8949 blank. This guide assumes the sale does not qualify for a personal-use exclusion.

Column definitions used on the form:

a
Description — brief identification of the property sold.
b
Date acquired — enter “INHERITED” instead of a specific date.
c
Date sold — the closing date of the sale.
d
Proceeds — gross sale price; use Box 2 of Form 1099-S if issued.
e
Cost or other basis — the stepped-up fair market value at date of death, plus any improvements.
f
Code — e.g. “E” when selling costs weren’t included on the 1099-S.
g
Adjustment — the dollar adjustment tied to the code in column (f), entered in parentheses when it reduces gain.
h
Gain or (loss) — calculated as (d) − (e) + (g).

Worked example — sale price $300,000, stepped-up basis $210,000, and $20,000 of selling costs not reflected on the 1099-S:

(a) Description (b) Date acquired (c) Date sold (d) Proceeds (e) Cost basis (f) Code (g) Adjustment (h) Gain/(loss)
Inherited house – Lot 5 Main St. INHERITED (date sold) 300,000 210,000 E (20,000) 70,000

Here, code E flags an expense adjustment, and column (g) shows (20,000) in parentheses to reduce the reported proceeds. The form then computes a gain of $70,000 in column (h).

Basis tip: If you received Schedule A of Form 8971 from the estate’s executor, use that reported value as your basis. Otherwise, support your fair market value with a qualified appraisal as of the date of death.
Reference guide based on IRS Form 8949 instructions Not tax advice — consult a professional

How the Sale Transfers to Schedule D

After listing each sale on Form 8949 and computing the gain/loss, Schedule D (Form 1040) is used to summarize and compute net capital gain/loss.

Since inherited assets are long-term, they go on Part II of Schedule D, lines 8–15 (or on line 8 if only one transaction).

SCHEDULE D
(Form 1040)
Department of the Treasury
Internal Revenue Service

Transferring to Schedule D

How your Form 8949 totals flow into Capital Gains and Losses Reference walkthrough for reporting an inherited-property sale — Part II, Long-Term
Reference Guide 2023 Tax Year Example
Topic: Summarizing an Inherited Property Sale
Applies to: Schedule D, Part II
After listing each sale on Form 8949 and computing the gain or loss, Schedule D (Form 1040) is used to summarize your transactions and compute your net capital gain or loss. Because inherited assets are always long-term, they’re reported in Part II, lines 8–15.
Part II Long-Term Capital Gains and Losses — Generally Assets Held More Than One Year.

Here’s how your Form 8949 figures carry over to Schedule D:

1
Combine your long-term transactions — including this sale — into Part II of Schedule D. Enter the total proceeds, total basis, total adjustments, and total gain or loss from your Form 8949.
2
Short-term vs. long-term. Short-term transactions are unlikely for an inheritance, since inherited property is always treated as long-term — so in most cases everything lands only in Part II.
3
Aggregation. If multiple inherited assets were sold, each is listed on Form 8949 and aggregated on Schedule D. Rows sharing the same box/checkbox situation can sometimes be combined onto one line, per the Schedule D instructions.
4
Netting. After summing, Schedule D nets your gains and losses. Long-term gains may qualify for preferential 0%, 15%, or 20% tax rates.
5
Capital loss limit. If the result is a loss, up to $3,000 ($1,500 if married filing separately) can be deducted against ordinary income in the current year; any excess carries forward to future years.

Where the totals land on Schedule D, Part II:

Line Description (d) Proceeds (e) Cost basis (g) Adjustments (h) Gain/(loss)
8b–10 Totals for long-term transactions reported on Form(s) 8949, by basis-reporting box — — — —
15 Net long-term capital gain or (loss) — combine lines 8a through 14 300,000 210,000 (20,000) 70,000
Then what? The net result from Schedule D (lines 16–18 for overall netting) flows through to Form 1040 as either a taxable capital gain or a deductible capital loss. For the full mechanics of each line, refer to the official Schedule D Instructions.
Reference guide based on IRS Schedule D (Form 1040) instructions Not tax advice — consult a professional

Refer to the Schedule D Instructions. Total long-term gains or losses from all Form 8949s go on lines 8–10, and netting is done on lines 16–18.

The net result then flows to Form 1040 as a taxable gain or deduction.

When Do You Have To Pay Inheritance Tax?

Inheritance tax rules can be confusing. Find out when you may owe tax, who is responsible for paying it, and which inheritances may be exempt.

See When Tax Applies

What If You Received Form 1099-S?

Form 1099‑S reports gross proceeds from real estate sales.

If you received a 1099‑S for the inherited property, you must report the transaction on your tax return.

Always use the 1099‑S box 2 as the starting point for column (d) on Form 8949.

1099-S
Informational Guide

Receiving Form 1099-S

Proceeds From Real Estate Transactions How to carry the figures from your 1099-S onto Form 8949
Reference Guide Form 1099-S Applies to inherited real estate sales

Reporting Guidance for Real Estate Sale Proceeds

Form 1099-S reports the gross proceeds from a real estate sale. If you received a 1099-S for the inherited property, you must report the transaction on your return. Always start with Box 2 — “Gross proceeds” as the figure that becomes column (d) on Form 8949.
Source of proceeds figure Form 1099-S, Box 2 (Total gross proceeds)
Where it goes on Form 8949 Column (d) — Proceeds
Cost basis reported on 1099-S? No — you must determine and enter it yourself
Where basis goes on Form 8949 Column (e) — Cost or other basis
1
Adjust for selling costs. The 1099-S generally will not include your selling costs. Enter “E” in column (f) on Form 8949 and list those costs as a negative adjustment in column (g).
2
Basis not reported. A 1099-S normally does not include cost basis. You must enter your own basis, typically the stepped-up fair market value — in column (e) on Form 8949.
3
Exclusion for home sale. If the property was your personal main home (rare for inheritance), you might qualify for the Section 121 exclusion. In that case, you do not report the sale on Form 8949/Schedule D — instead follow the Schedule D instructions for the home-sale exception.
4
Foreign seller withholding. If the seller was a foreign person, the buyer might have withheld tax under FIRPTA. That withholding should also be reported on your return if it applies.
5
Nominee sales. If you held the property as nominee and received a 1099-S not in your own name, follow the Form 8949 instructions for nominee reporting.
Bottom line: Form 1099-S is informational, it simply tells the IRS about the sale. Use it to populate Form 8949 (with the adjustments above), but don’t rely on it blindly: verify both proceeds and basis independently. The IRS expects the sale to be reported even if no 1099-S was ever issued.
Reference guide based on IRS Form 1099-S instructions Not tax advice — consult a professional

Filing Example: Reporting an Inherited House Sale

Let’s assume a scenario.

Example

Alice inherits her late parent’s house. At the date of death, the property is appraised at $200,000.

She later sells it for $300,000, paying $15,000 in agent fees and $5,000 in legal and transfer costs.

Alice makes no improvements after the inheritance. She is single, and the property is not her main home.

  1. Basis: $200,000 (stepped-up basis at parent’s death).
  2. Amount Realized: $300,000 − ($15k + $5k) = $280,000.
  3. Gain: $280,000 − $200,000 = $80,000 

Alice received a Form 1099‑S reporting $300,000 proceeds.

She completes Form 8949 Part II (Long-Term, box D/E/F as appropriate) as follows:

1099-S
Worked Example

Worked Example

Inherited Home Sale From Form 1099-S proceeds to Form 8949 and Schedule D

Proceeds From Real Estate Transactions

Scenario: Alice inherits her late parent’s house. At the date of death, appraised FMV = $200,000. Alice later sells the house for $300,000, paying $15,000 in agent fees and $5,000 in legal/transfer fees. She made no post-death improvements. (Alice is single, and the home was not her main home.)
Basis (stepped-up FMV at death) $200,000
Sale price (1099-S, Box 2 proceeds) $300,000
Selling costs (agent + legal/transfer fees) $15,000 + $5,000 = $20,000
Long-term capital gain $80,000
Amount realized $300,000 − ($15,000 + $5,000) = $280,000
Gain (Amount realized − Basis) $280,000 − $200,000 = $80,000
(a) Property (b) Type (c) Acquired (c) Sold (d) Proceeds (e) Basis (f) Code (g) Adjustment (h) Gain
123 Main St (inherited) INH 2023-07-01 (decedent’s death) 2026-06-01 300,000 200,000 E (20,000) 80,000
  • Alice enters “INH” in column (b) and checks the Long-Term box (D, E, or F, as appropriate).
  • Basis is $200,000 in column (e).
  • “E” in column (f) with ($20,000) in column (g) reduces proceeds for the $20,000 of selling costs not reflected on the 1099-S.
  • Column (h) is computed as an $80,000 gain.
  • On Schedule D, Part II, Alice carries the $300,000 (column d total), $200,000 (basis total), $20,000 (total adjustments), and net $80,000 gain to line 8. On line 16 she nets gains/losses — here just the $80,000 gain — which flows to Form 1040.
How it populates:
Form 8949 Part II (Long Term): Description: “123 Main St (Inherited)” Date acquired: “2023-07-01” (or write “Inherited”) Date sold: “2026-06-01” Proceeds: 300000 Basis: 200000 Code: E Adjustment: (20000) Gain: 80000 Schedule D: Line 8: Long-term gains – from Form 8949 Proceeds 300000, Basis 200000, Gain 80000 Line 16: Net long-term gain = 80000 Total long-term gain = 80000 (taxed at LTCG rates)
Breakdown of $280,000 Realized Proceeds
$280k realized
Stepped-up basis: $200,000 (71%)
Capital gain: $80,000 (29%)
Shows how the $280,000 amount realized splits between the stepped-up basis and the taxable capital gain.
Illustrative worked example — figures rounded for clarity Not tax advice — consult a professional

What If You Sell the Property for More Than Its Stepped-Up Basis?

If your sale generates a gain, it is taxed as a long-term capital gain.

  • Net Investment Income Tax (NIIT): High-income taxpayers may owe an extra 3.8% on net investment income (including capital gains).
  • State Taxes: Many states tax capital gains as ordinary income.
  • Depreciation Recapture (if rental): If the inherited property was used as a rental and you claimed depreciation after inheritance, part of the gain attributable to depreciation may be recaptured at ordinary rates.
  • Primary Residence Exclusion: If the inherited property was also your primary home and you meet Sec. 121 ownership/use tests, you could exclude up to $250k of gain.
  • Installment Sales: If you received payments over time, you might use Form 6252 and report on Schedule D. Inherited property sales are often lump-sum.

What If You Sell Inherited Property at a Loss?

If you sell inherited property for less than your basis, you have a capital loss. The deductibility of this loss depends on the property’s use:

Property Use Is the Loss Generally Deductible? Tax Treatment
Personal Use
No
Losses on personal-use property, such as a personal residence or vacation home, generally aren’t deductible.
Investment Property
Generally Yes
A loss on investment property is generally a capital loss, subject to the applicable capital-loss rules.
Rental Property
Generally Yes
The loss may be deductible, but depreciation and passive-activity rules may affect the calculation and deduction.
Business Property
Generally Yes
The loss may receive Section 1231 treatment rather than ordinary capital-loss treatment.
Sale to a Related Party
May Not Be Deductible
Special related-party rules can disallow the loss.
Inherited Property
—
If the property is a capital asset, the gain or loss is generally treated as long-term, regardless of how long you held it.
Selling an Inherited Home FAQs

Selling an Inherited Home FAQs

If the inherited home was for personal use, the loss generally isn’t deductible. You may still need to report the sale, especially if you received Form 1099-S.

Use the best available evidence, such as an appraisal, estate documents or tax records. If the estate filed Form 706, the reported value can help establish your basis.

It depends on how the home was owned. Each inherited share generally gets a basis based on its value at the date of death, with special rules for jointly owned and community property.

Generally, no. If you sell the home for an amount equal to your adjusted basis, you generally won’t have a taxable gain.

Possibly. Inheriting a home doesn’t automatically qualify you for the home sale exclusion. You generally must meet the ownership and use requirements to claim it.

Usually, if the sale needs to be reported. Form 8949 is generally used to report the sale, with the result carried to Schedule D.

The executor or personal representative of the estate should have the information you need. If the estate filed Form 706, you may receive Schedule A of Form 8971 with the property’s reported value.

Your basis generally must be consistent with the value reported to the IRS when the consistent-basis rules apply. Check the estate’s Form 8971 before reporting the sale.

Yes. Your basis can depend on the type of interest you inherited and how it was treated for estate tax purposes. Special rules may apply to partial interests, life estates and other limited interests.

The main IRS resources include Publication 551 for basis, Publication 544 for sales of assets and Publication 523 for selling a home. You can also review the instructions for Form 8949 and Schedule D.

References:

I'm Dave, a retirement writer with 15+ years in insurance and financial services, helping seniors navigate retirement, Social Security, and savings with clear, practical guidance.

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