Another example would be if you inherited a home. The cost basis is the fair market value of the home on the date your loved one passed away and not the price your loved one purchased the home for years ago. For example, if you inherit a home from your grandfather that is worth $100,000 on the date your grandfather passed away, then your cost basis is $100,000 even if your grandfather originally purchased the home 20 years ago for $30,000. If you sell the home 8 months later for $95,000, then you would report a $5,000 loss on your tax return for the sale.
In very rare scenarios, an executor of an estate may elect to do an alternate valuation 6 months after the date of death to reduce estate taxes. In that scenario, the cost basis is the alternate valuation instead of the fair market value at the date of death.
Property sold for a loss:
If you sold the inherited property for a loss, you can claim a capital loss deduction if all of the following are true:
- The sale was a transaction where you didn't have a business relationship with the buyer.
- You sold the property to an unrelated person.
- You didn't use or convert the property for personal purposes.
