When a home is inherited by adult children, sorting out the tax issues can be tricky.

Here with some advice is IRS tax expert Jesse Weller. To see more of his answers on federal taxes, go to "Ask the Experts" at www.sacbee.com/ask. That's where you can also find answers from other local experts on state taxes, will/trusts, investing and personal finances.

My mother recently passed away. Her home was paid off and her three kids were listed on the deed. One of my sisters is going to keep the house and buy out the remaining two siblings. Will we owe federal or state taxes on this sale? Our estimated share is $70,000 each. Since we are on the deed, would this be nontaxable income from a home sale?

As co-owners, a sale of property between you and your siblings must be reported. Usually the three sellers would report their respective ownership interests on their federal income tax returns for the year of sale. For example, if the fair market value of the home at the time of sale is $210,000 and you each have a one-third interest, each seller would report their $70,000 share of the sale price. If the home is not rented out or otherwise producing income, the sale would be reported on Schedule D Capital Gains and Losses.

Whether or not there is a capital gain on the sale that could increase your tax liability depends on your "basis" in the home. Basis is the amount of your investment in the property for tax purposes. If your basis is less than the sale price, there would normally be a taxable capital gain on the sale. If your basis is more than the amount realized from the sale, there would be a loss. (But, you can only deduct capital losses on investment property, not on property held for personal use.)

The basis of property you buy is usually its cost. But in your case, determining the basis amount depends on whether the children were gifted title to the home while your mother was alive, or whether title passed to the three of you as an inheritance after her passing. The rules for the basis of gifted property are very different from those for inherited property. Both sets of rules can be complex.

For example, to figure the basis of property received as a gift, a taxpayer must know the basis to the donor just before it was given, the value of the property at the time it was given, and any gift tax that may have been paid on it.

If property is inherited and the decedent died before or after 2010, the beneficiary's basis is usually the property's fair market value on the date of death. (Special basis rules apply to inherited property from a person who died in 2010.)

For more information on basis rules, see IRS Publication 551, Basis of Assets. For the special rules on inherited property, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. You can download them at the IRS website (www.irs.gov) or order copies by mail by calling (800) TAX-FORM (829-3676).

If you need more information to help determine your cost basis, it would be a good idea to contact the person who administered your mother's estate. If you need help reporting the sale at tax time, you may want the help of a tax professional.

– Compiled by Claudia Buck

© Copyright The Sacramento Bee. All rights reserved.