Written by the Inherited Home Buyers editorial team· Reviewed by Editorial Tax Reviewer (Placeholder) (CPA)· Last updated 2026-05-25
Investment vs personal use
The IRS allows a capital-loss deduction only on investment-use property. If you (or any heir) lived in the house before sale, the IRS may classify it as personal-use and deny the loss. Best practice: rent it out (or leave it vacant and listed) immediately after probate, document the investment intent, and don't move family in.
How is the loss calculated?
Loss = stepped-up basis − (sale price − selling costs). Selling costs include commission, transfer tax, attorney fees, and the cost of the date-of-death appraisal.
Reporting the loss
Form 8949 (Box E or F), carried to Schedule D. Net capital losses up to $3,000 ($1,500 if MFS) reduce ordinary income each year; the rest carries forward.
Sources
Frequently asked questions
Yes, if the property was held as an investment and never used personally by an heir between inheriting and selling.
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This page is for general educational purposes only and is not tax advice. Tax outcomes depend on your specific facts and the year of the transaction. Always confirm with a licensed CPA or tax attorney before making decisions.