Sale of Inherited Property and Section 121 exemption
There is an estate proceeding open for an intestate decedent, ready for distribution of assets to beneficiaries. One of these assets is a house owned solely by the decedent. Online sources, including state websites, have said that, in New York state, real property automatically vests in the heirs of an intestate estate. An administrator's deed documenting the transfer of ownership has not yet been filed with the county. It has been more than 5 years since this person has died. I understand that property sold within an estate does not qualify for the Section 121 exemption on capital gains tax. Would the heirs, having lived in the house from before his death up until the present day, qualify for Section 121 if the house is sold after being distributed to them from the estate? Is their having title, though not having it documented on a deed, sufficient to meet the "ownership" requirement, or does the IRS only consider ownership as starting once the house is formally distributed from the estate to the beneficiaries? Thank you.
