@freddytax wrote:
Q1: The home is in California and his wife died ~11 years ago. My understanding from his lawyer is that as CA is community property state he will get the step up
for the exemption for the home. I wanted to a) verify that this is the case and b) on his taxes (which I'll do for him in TT) do I simply apply the $500K exemption?
Q2: My wife inherited a home along with her two siblings. The home is in CA, paid for and worth ~$1.2M. The family will sell the home soon and my understanding is that there will be no inheritance tax event as the proceeds will be well below the Federal $12.92M exemption and CA has no inheritance tax. a) please verify this and b) where in TT do I account for the inheritance (split three ways amongst the siblings) for the home?
Q1: The "step up" means the 'cost' is stepped up. When you report the sale, you enter the cost and the sales price, and the difference is the profit. In this case, the 'cost' is the Fair Market Value on his wife's Date of Death.
If he meets the requirements of the Principal Residence exclusion, he can 'exclude' up to $250,000 of the profit (after factoring in the adjusted stepped-up cost). If he is single, it is a $250,000 exclusion (not $500,000).
Q2: Did the house go directly to your wife and her siblings, such as a Transfer on Death deed? Or are they just beneficiaries of the will (in which case the property belongs to the 'estate' right now)?
