Bought 2 homes in Aug 2017 for a total of $180K. Attorney assigned a value of $110K to one home and $70K on the other and deeded as such. though I am not sure why.
I sold one home for $165000 in Feb 2018and kept the other as a rental.
The 2017 tax bills show a taxable value of of 165K for the home I sold.
Can I use the tax value as the basis?
If the tax bill was for both homes then the attorney was correct to split the cost basis and you really need to use those figures he gave you unless you have a solid reason not to... did each home have it's own tax bill already ?
And you bought both for just $180 ? Seems amiss for one home to have a tax value of $165.
Each home had/has a separate tax bill. One home was valued at $165K and the other valued at 135K.
However, I purchased the homes as a package for $180K and both were listed on a single Closing Statement.
The attorney included both address on the same closing disclosure.
Can I assign a value to each home? The attorney assigned $110K and 70K as value for each home.. I guess to have a value on the deed for recording purposes.
Ok ... so the tax value ( not a true value for income tax purposes ) for both properties is 165+135=300 which is obviously not the fair market value since you paid much less... 300 x 65% = 165 and 300 x 45% = 135
Thus the ratios is 65% & 45% using this information ... so the purchase price of this "deal" was 180K (the fair market value must be used not the tax value) ... so I would extrapolate the cost basis for each property to be (180 x 65%) = 117K and (180 x 45%) = 81K
This is a correct basis valuation that the IRS will not question in an audit ... of course make sure to add the cost of purchase to the cost basis of each home ... use the same ratios.
The tax value (assigned by the county) and the fair market value (what the homes would sell for on the open market) are very close. One home is tax value is 165K and I sold it for 167K. The other has a tax value of $135K and that's probably what I could sell it for.
Why is is being determined that the fair market value is based on what I paid for the home? Obviously, I got a great deal on the homes, but that should not affect the fair market value.
It seems that I should be able to use the value placed on the home by the taxing authority as the basis.