The home sale gain exclusion rules for an inherited home can be complex. Learn about the regulations laid out in the Internal Revenue Code here.

A beneficiary who inherits the residence of a decedent generally acquires it with a basis equal to the fair market value at the decedent’s date of death, and since it is inherited property, it is treated as held for long-term. (Rules for the basis of inherited property acquired from decedents dying in 2010 may be different depending on the election of the executor. These rules are covered in Chapter 1.05.) Generally, a beneficiary will sell the residence through a broker and will have substantial sales costs. These sales costs quite often translate into a loss on the sale (Sales price – sales costs – inherited basis = gain/<loss>).

Loss on the sale of inherited property which was the residence of the decedent can be deductible if the beneficiary immediately attempts to rent or sell the property. (Campbell, N. Stuart, (1945) 5 TC 272; Carnrick, George, (1947) 9 TC 756, acq.) If the beneficiary was living in the house at the decedent's death, a loss will be allowed if he indicates his intention to move and does so as soon as he can locate other quarters. A reasonable time is allowed to do this. (Crawford, Mary, (1951) 16 TC 678, acq.)