If you sell inherited property at a loss, you can deduct the loss on your tax return.
Example: Your parents leave you a house with an original purchase price of $100,000, and a market value of $300,000. You inherit the house estate tax free, receive a “stepped-up” basis of $300,000, and hold it as an investment (you do not live in it). When you sell the house for, say, $260,000, you can deduct $40,000, subject to annual loss deduction limits. (As mentioned earlier capital losses are deductible dollar for dollar against capital gains and can offset up to $3,000 of ordinary income each year. Excess losses are carried forward to subsequent tax years.)
Added benefit: The loss is deductible even if it is created by brokerage commission payments.
