USA Inherited home, lived in it less than 2 years, sold it, was advised by CPA not considered personal residence & can take capital loss on Schedule D

[FredricJLowe]

I know someone who inherited her parent's home in November 2017. She moved into the home and sold it in March 2019.

The CPA said this can be considered investment property and not her personal residence since she didn't reside in this home for at least 2 years.

Her CPA prepared her tax return and is showing this as a Capital loss {adjusted sales proceeds - (stepped up cost basis + improvements)} = small Capital Loss) against Capital gains.

I haven't been able to find anything that supports this rationale that it is not her principal residence since living in it less than 2 years and therefore can be considered an investment property eligible for capital gains treatment. Is this an accurate assessment? Can she take this as a capital loss against her capital gains?
Thank you.

 

[kirby]

But think ahead to this scenario:

Your friend: "My CPA whom I know personally gave me guidance on my tax question."
You: I have a source who disagrees. I don't know them from Adam and they may well be in the loony bin."

 

[FredricJLowe]

But think ahead to this scenario:

Your friend: "My CPA whom I know personally gave me guidance on my tax question."
You: I have a source who disagrees. I don't know them from Adam and they may well be in the loony bin."

Kirby,
I'm totally confused by your reply. With all due respect, I am trying to ascertain where the law supports his rationale that since she lived in the inherited home less than 2 years (wouldn't be eligible for the $250K exclusion if there was a capital gain), why would it not be considered a personal residence as the CPA is claiming.
Your first reply said, why second guess the CPA? So in other words, if the CPA is wrong, and the client is audited, the client will end up paying the taxes and then she would go after the CPA to pay any penalties and interest.
But then you followed up with "You: I have a source who disagrees. I don't know them from Adam and they may well be in the loony bin."

Who are you referring to when you say, "they may well be in the loony bin?"

 

[kirby]

If You Inherit a Home Do You Qualify for the $250,000/$500,000 Home Sale Tax Exclusion?

Special tax rules apply when you sell a house you inherit, which could help you avoid capital gains taxes.

www.nolo.com

The above should set your mind at ease. CPA is correct.

The "they" above refers back to "source".

 

[FredricJLowe]

Yes Kirby I would agree with what you showed me. I read the exact same article, but notice towards the bottom it said this:

"If you sell an inherited home for less than its stepped-up basis, you have a capital loss that can be deducted (assuming you don't use the home as your personal residence)."

She DID live in it for almost 1.5 years as her personal residence. That is the part I am trying to understand how the CPA feels it can be considered investment property thereby allowing for the capital loss.

 

[kirby]

The IRS determination of "personal residence" is based on the 2 year rule. 1.5 years does not hit that mark.

 

[FredricJLowe]

That's what I needed to hear!!
Thank you Kirby!!