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dvdgarofalo
Level 2

Figuring historical basis on inherited property

Home originally owned by solely by parent for many decades.


Son takes 1% interest then full interest as follows:

March 15, 2010
1% interest/99% remainder (recorded on deed)
April 17, 2010
Parent died
Son now has 100% interest

 

September, 2022
Son now selling for $60,000.
How do we determine original basis?
Is it value at parents death?
Can an historical appraisal be used to provide that value?

Thank you in advance.

6 Replies
Bsch4477
Level 15

Figuring historical basis on inherited property

If you inherited the home in 2010 the basis is the value of the home at that time plus any capital improvements you made since then. Any reasonable documented estimate of the value at that time may be used.  Any  capital gain  would be excluded if you lived in the home 2 of the last five years. 

dvdgarofalo
Level 2

Figuring historical basis on inherited property

Thanks much.

Do you know, would I need an appraisal? Or is a CMA from a real estate agent sufficient? I am actually the agent, the owner selling it is a client. I'll be recommending an accountant but want to give him a general idea.

Bsch4477
Level 15

Figuring historical basis on inherited property

A CMA should be fine. If the seller is eligible for the capital gain exclusion and he doesn’t receive form 1099-S, he would not have to report the sale. 

rjs
Level 15
Level 15

Figuring historical basis on inherited property


@dvdgarofalo wrote:

Do you know, would I need an appraisal? Or is a CMA from a real estate agent sufficient?


Whether you need an appraisal depends on how demanding the IRS auditor is if the tax return is audited. How reliable is your CMA for 12 years ago? I usually recommend a retroactive appraisal by a certified appraiser. It's a lot easier to defend in an audit. But considering the relatively small amount of money involved, your client might not want to pay for an appraisal.


Then there's that other 1%. Technically the owner's basis now is 99% of the value on the parent's date of death, plus his own basis in the 1% that he owned before the parent died. That depends on how he acquired that 1% interest. Did he pay for it? Was it a gift? But again, 1% of a $60,000 home is so little that it's almost not worth worrying about.


You haven't said what the son did with the property for the last 12 years. Has he been living there? That will determine his eligibility for the Section 121 exclusion of gain. If he rented it out at any time, that adds some complications.


There's one other complication, since the parent died in 2010. You need to know whether the parent's executor made a Section 1022 election. This was available only for decedents who died in 2010. If the executor made a Section 1022 election, the son's basis is determined differently, and there is no stepped-up basis. For details see IRS Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010.

 

Mike9241
Level 15

Figuring historical basis on inherited property

if the gain would be fully excludable because it does not exceed the home sale exclusion you're eligible for and was never rented, no appraisal would be needed.  

Opus 17
Level 15

Figuring historical basis on inherited property


@dvdgarofalo wrote:

Thanks much.

Do you know, would I need an appraisal? Or is a CMA from a real estate agent sufficient? I am actually the agent, the owner selling it is a client. I'll be recommending an accountant but want to give him a general idea.


If the current owner has lived in the home as their main home more than 2 years of the past 5 years, they likely can exclude up to $250,000 of gain (or $500,000 if MFJ) and since the price is less than that, basis is irrelevant.  (However, for that price it might be property but not a home.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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