What are the tax implications of selling an empty lot that was inherited with my mother’s home?

What are the tax implications of selling an empty lot that was inherited with my mother’s home?

by Dominic T. Cutuli, CPA | Jun 27, 2019

I inherited a home from my mother about 1 1/2 years ago when she passed. The property consists of two lots side by side, with a house on one of the lots. I’m listing the empty lot for sale and plan to keep the house as a rental. I was wondering what tax implications I should expect after the sale of the empty lot. Would this qualify for capital gains since I’m keeping the house? Does the fact that this is an inheritance affect anything? 

The first item you need to determine is your basis in the real estate. The basis of property inherited is generally the fair market value on the date of death. If the property is in Pennsylvania, this value should have been reported on Pennsylvania Inheritance Tax Return Form REV-1500. 

For the vacant lot, you would take the sales proceeds received less any selling expenses or closing costs paid, and then subtract your basis in the property from the above to determine your taxable income. Because you held the property for over a year, it would be considered a long-term capital gain.

Please note that if you eventually sell the property that has the rental home, the tax implications are more complex due to this being a business property with deductions for depreciation. In this instance, I would strongly recommend contacting a CPA to assist you with the tax consequences.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Dominic T. Cutuli, CPA, is a principal with H2R CPA in Pittsburgh.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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