cost basis of home

[Nellie4]

My mother recently passed.  She had a revokable trust.  Her house was titled in the trust.  Successor trustees sold the house (per instructions of the trust) a couple of months after her death.  How is the cost basis of the house established in this situation?  Someone told me that the value of the house at the time of death was the basis, and not the price she paid for the house some number of years ago.  Is this correct?  I'm trying to determine the appropriate basis, so that capital gains taxes can be paid.  Thanks.

[tagteam]

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@Nellie4 wrote:

Someone told me that the value of the house at the time of death was the basis, and not the price she paid for the house some number of years ago.  Is this correct? 

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Yes, that would generally be correct assuming she purchased the house and placed it in a revocable trust that she had drafted for her (which would have become irrevocable upon her passing).

I am sorry for your loss.

[CPAGAL33]

Hi @Nellie4 

I'm sorry for the loss of your mother.

The basis of property inherited from a decedent is generally one of the following:
The fair market value on the date of death (this can be referred to as Step Up Basis)

OR

The fair market value on an alternate valuation date.

Here is a link with additional information that will be helpful in determining which one is appropriate for your specific situation.

Sale of Inherited Property/Basis 

Best,

Melanie B.
CPA for 21 years

[conniem123]

Hi , Nellie4, thank you for your question!  Sorry for your recent loss. 

When you inherit property after the owner dies you automatically receive a "stepped-up basis." This means that the home's cost for tax purposes is not what the now-deceased prior owner paid for it. Instead, its basis is its fair market value at the date of the prior owner's death.  This stepped-up basis will decrease gain on sale of the home.

I hope this information is helpful!

Connie

[Ruth C-L]

To add to the already expert guidance others have provided, to determine the fair market value at the time of death or alternate valuation date, at times it may be necessary to procure an appraisal from a licensed appraiser to determine what the fair market value would be at the date of death or alternate valuation date. 

The IRS has defined the appraisal standards that must be met along with verifiable minimum education, designation and experience requirements for an appraiser performing appraisals for estate tax purposes. The appraiser must have experience with IRS Real Property Valuation Guidelines. Treasury Regulation Section 20.2031-1(b) requires the residential appraiser to follow the valuation guidelines when preparing a real estate appraisal for tax purposes or retrospective date of death valuations. In addition, the real estate appraiser should be designated and qualified under IRS tax regulations Section 1.170A-17(a).

[Nellie4]

Thank you for all excellent responses.

Unfortunately, an appraisal was not done at the time of death.  The house sold only three months later, and the buyer did not request an appraisal as it was an all-cash transaction.  Is there another way to establish FMV retroactive to the date of death?

[conniem123]

An appraisal can be done retroactive, as an appraisal will include analysis of comparable sales in the area during the time period of the inheritance.

I hope this is helpful!

Connie

[CPAGAL33]

Just to add to what conniem123 stated, when you order the appraisal, all you need to do is tell the appraiser what date you would like it to be retroactive to and they should be able to use comparable sales to help determine that value for you so you have documentation if needed for an audit.