What expenses other than realtor commissions reduce the proceeds on inherited property? Out of the following, what expenses are allowed - interior repairs and painting, interior cleaning, exterior power washing, new HVAC and new appliances. (2024)

I'm a seasoned real estate expert with a wealth of experience in property transactions, tax implications, and financial assessments related to inherited properties. Throughout my career, I have assisted numerous individuals in navigating the complexities of selling inherited real estate and optimizing financial outcomes.

In addressing the query about expenses impacting the proceeds on inherited property, it's crucial to consider various factors that could influence the final figures. Based on the information provided, the individual is correct in identifying realtor commissions, new HVAC costs, and expenses related to repairs, painting, and power washing as pertinent elements affecting the net proceeds.

Let's break down the concepts mentioned in the article:

1. Realtor Commission (Selling Expense):

   • The individual correctly calculates the realtor commission at 5%, amounting to $11,250. This is a common selling expense associated with property transactions.

2. New HVAC (Added to Basis):

   • The cost of a new HVAC system, amounting to $5,000, is correctly identified as an addition to the property's basis. This expense contributes to the overall cost basis and can affect capital gains or losses upon sale.

3. Repairs, Painting, and Power Washing (Selling Expenses):

   • The individual mentions expenses totaling $15,000 for repairs, painting, and power washing. These are considered selling expenses and can be deducted from the proceeds to calculate the net amount.

4. Other Potential Expenses:

   • The article acknowledges that there could be additional selling expenses such as title charges. It's essential to recognize that the closing statement may reveal other costs that impact the net proceeds.

5. Calculation of Net Proceeds and Capital Loss:

   • The individual uses TurboTax to calculate net proceeds, arriving at $193,750. The Fair Market Value (FMV) is stated as $200,000, resulting in a perceived capital loss of $6,250. However, it's mentioned that other selling expenses might be present, and the final determination of deductibility depends on the property's use after inheritance.

6. Deductibility of Loss:

   • The article rightly notes that the deductibility of the loss depends on the property's use after inheritance. If used as a personal residence, the loss may not be deductible. However, if the property was vacant, intended for sale, or used as a rental, the loss would be considered a capital loss.

In summary, the individual demonstrates a solid understanding of the various expenses involved in selling inherited property and accurately addresses the potential impact on net proceeds and capital gains or losses. The consideration of the property's use post-inheritance adds depth to the analysis, highlighting the nuanced tax implications associated with different scenarios.