topic Inherited house basis calculation with no appraisal at time of death in Deductions & credits

Inherited house basis calculation with no appraisal at time of death

tclark410 — Sat, 01 Jun 2019 15:21:34 GMT

House was inherited by 4 siblings in 2016, sold in 2017 after $25k improvements, painting, flooring etc...

Did not get appraisal at time of death. How do we calculate basis, and since the proceeds are split among 4, do we split the basis as well?

Is the buyers concesssion (3% of sale price) subtracted from the sale of the house?

The basis of an inherited home is generally the Fair Mark...

PatriciaV — Sat, 01 Jun 2019 15:21:35 GMT

The basis of an inherited home is generally the Fair Market Value (FMV) of the property at the date of the individual's death. If no appraisal was done at that time, you will need to engage the help of a real estate professional to provide the FMV for you. There is no other way to determine your basis for the property.

Your total shared basis would be the inherited basis plus the cost of repairs & improvements.

Each owner would report an allocated portion of the sale transaction on his/her individual tax return. The buyers concession would be deducted from the gross sales price, either as an adjustment to gross proceeds, or as a selling expense.

Additional Information

Re: The basis of an inherited home is generally the Fair Mark...

BMC763 — Tue, 15 Oct 2019 00:40:23 GMT

My father passed in Dec 2018 and my 2 brothers and I just completed probate in the state of Florida and the home was transferred to our names in as of Aug 27, 2019 , we just sold the home Oct.11, 2019 . We are all Massachusetts residents. Is there a formal document that is required from a real estate agent for the cost basis to establish FMV, I would say FMV did not change from the time it was transferred in our names in Aug 2019 compared to when we sold it in Oct. 2019 . Question is how do I prove that and do I need to ? Also the proceeds were all processed via my SS# on the 1099-S but if there is no tax liability I don't think this would matter would it ? As I see it there are no capital gains. Finally at the time of the sale there was a mortgage that was satisfied and moneys were left over that we split equally , this is not taxable in our state as I understand it as there is no inheritance tax in MA. is this correct, I just need to make sure before we split all the proceeds that I am not on the hook for taxed related to this .

Re: Inherited house basis calculation with no appraisal at time of death

3tipper — Tue, 04 Feb 2020 20:48:22 GMT

How do i determine the value of land inherited 20 years ago?

Re: Inherited house basis calculation with no appraisal at time of death

GiseleD — Tue, 04 Feb 2020 20:58:21 GMT

If a qualified appraisal was not done, you can always refer to tax records from that year to get a general idea of the land's value. However, the safest way to obtain a valuation on this land as of 20 years ago is to get a retroactive appraisal. This is especially important if the value of the land was/is significant. Real estate professionals in your area may be able to recommend an appraiser who specializes in retroactive appraisals.

@3tipper

Re: Inherited farm real estate with no appraisal at time of death

Trice81250 — Fri, 17 Jul 2020 13:04:07 GMT

Methods of determining FMV for tax basis at sale?

Re: Inherited farm real estate with no appraisal at time of death

Opus 17 — Fri, 17 Jul 2020 14:13:31 GMT

FMV on the date of the sale is the price that a willing buyer pays a willing seller in an open and fair transaction (not a forced sale, not between related persons). Fair market value means just that, the fair market price.

The cost basis is something very different and can be complicated to calculate.

Re: The basis of an inherited home is generally the Fair Mark...

Jack100000 — Sun, 26 Sep 2021 21:07:16 GMT

The improvements made PRIOR to death would NOT be part of the cost basis at the time of death. Only improvements (which are defined by the IRS) made after the person's death would contribute to raising the cost basis of the property. Is that correct?

PS I'm not a tax professional, but I've read quite a bit about cost basis after death. There are nuances too, if you are dealing with an Estate, or a Trust that owns the assets from a spillover of assets from a Will to a Revocable Trust.

Re: The basis of an inherited home is generally the Fair Mark...

Critter-3 — Sun, 26 Sep 2021 21:23:23 GMT

That is correct since you start with the FMV as of the date of death and not the decedent's cost basis.

Re: The basis of an inherited home is generally the Fair Mark...

aylee98 — Thu, 13 Jan 2022 23:01:42 GMT

Hi,

My father passed away in 2013 and he created a family revocable trust for which him and my mother were co trustees. Upon his passing, my mother had to update deeds and the trust to reflect her as sole trustee. We had a valuation (not appraisal) done of the properties held within the revocable trust.

My questions are...

- She didn't file an estate tax return bc the value of the estate was low. was this a mistake?

- She had a valuation done of all the properties within the estate. Is this sufficient to establish cost basis at time of my fathers death?

- Should she be getting appraisals today that record assess the value of these properties from 2013?

My mother is now preparing to sell one of these properties but we don't know the cost basis. We don't want this to negatively impact her capital gains tax.

Re: The basis of an inherited home is generally the Fair Mark...

DaveF1006 — Thu, 13 Jan 2022 23:39:19 GMT

It depends. According to irs.gov, When someone dies, their assets become property of their estate. Any income Yes, those assets generate is also part of the estate and may trigger the requirement to file an estate income tax return. Examples of assets that would generate income to the decedent’s estate include savings accounts, CDs, stocks, bonds, mutual funds and rental property. IRS Form 1041, U.S. Income Tax Return for Estates and Trusts, is required if the estate generates more than $600 in annual gross income.

Yes, the valuation done at the time of your father's death is sufficient to use as a cost basis. As for the cost basis of the property being sold, In this case, you will compare the cost basis of similar properties in your portfolio and make an educated guess on what the cost basis.

Since you are using the cost basis for the properties in 2013, you will not need to get appraisals. You will use either the value of the property on the date of the original owner's death, or a date selected by the executor no later this six months after the death.

Re: The basis of an inherited home is generally the Fair Mark...

Opus 17 — Fri, 14 Jan 2022 00:23:35 GMT

@aylee98 wrote:

Hi,

My father passed away in 2013 and he created a family revocable trust for which him and my mother were co trustees. Upon his passing, my mother had to update deeds and the trust to reflect her as sole trustee. We had a valuation (not appraisal) done of the properties held within the revocable trust.

My questions are...

- She didn't file an estate tax return bc the value of the estate was low. was this a mistake?

- She had a valuation done of all the properties within the estate. Is this sufficient to establish cost basis at time of my fathers death?

- Should she be getting appraisals today that record assess the value of these properties from 2013?

My mother is now preparing to sell one of these properties but we don't know the cost basis. We don't want this to negatively impact her capital gains tax.

I think I need to tell you to see a local accountant or attorney. Taking stuff out of the trust to sell it (while leaving other assets protected in the trust) is one tricky issue. Determining the basis of the property that is to be sold is another tricky problem.

In general, if your mother and father lived in a community property state, then her basis on property she co-owned with her husband, is equal to the FMV on the date he died. She received a full stepped-up basis. If they did not live in a community property state, she received a stepped up basis on half the property she inherited, and keeps her original basis on the other half she did not inherit. Her original basis is what she originally paid, even if it was a long time ago (or half of what she paid, if she bought it with her spouse). The county will have records of the original purchase price.

You can add to the basis by the cost of permanent improvements you can prove. It may be reasonable to estimate if you know she made improvements but did not save receipts, but be aware that if she is audited, the IRS does not have to allow any basis that she can't prove.

An estate tax return generally not required if the estate passes to the surviving spouse (and the trust is not part of the estate in any case) but you would have to check with the laws of your state to see if she had any state tax responsibilities.

Whether an informal evaluation would satisfy an auditor will depend on the personality of the individual auditor. If

Re: Inherited house basis calculation with no appraisal at time of death

Anonymous — Tue, 25 Jan 2022 04:13:26 GMT

If the house was stuck in probate for a few years and the deed was therefore not allowed to be transferred in that time, is the basis still calculated at time of death or is it calculated at the time the children were actually able to "own" and sell the property?

Re: Inherited house basis calculation with no appraisal at time of death

MaryK4 — Tue, 25 Jan 2022 04:36:18 GMT

The basis of property inherited from a decedent is generally one of the following:

The fair market value (FMV) of the property on the date of the decedent's death or
The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return.

@Anonymous

Re: Inherited house basis calculation with no appraisal at time of death

MrChilln — Sat, 16 Apr 2022 12:58:25 GMT

Thank you. I see lots of responses stating that FMV on date-of-death is to be used to determine cost basis when one goes to sell the inherited property, but....

1) How do we determine FMV?

2) Do we need to engage a formal assessor or real estate agent to obtain an FMV? Is that good enough?

3) What's the true book-of-record the IRS will refer to when determining if there was a captain gain or not?

Thank you, Ed

Re: Inherited house basis calculation with no appraisal at time of death

AnnetteB6 — Sat, 16 Apr 2022 13:16:33 GMT

The fair market value as of the date of death can generally be determined by getting an appraisal performed for the property. Appraisers may take the date of death into consideration when they evaluate the property.

A formal assessor or possibly a real estate may also be used to provide fair market value for the property.

In the unlikely event that the IRS were to question or audit your return, you should have some sort of written property evaluation or appraisal to back up your basis for the property. There is not a specific source of information that must be used. Many times, acceptable documentation is subject to the discretion of the IRS auditor.

@MrChilln

Re: Inherited house basis calculation with no appraisal at time of death

MrChilln — Sat, 16 Apr 2022 14:27:43 GMT

Perfect, thank you. This helps clarify a big gray area for me.

Re: Inherited farm real estate with no appraisal at time of death

CoolFunDad — Fri, 20 May 2022 07:42:57 GMT

Hi Opus17, your replies to people have been extremely informative and I wanted to reach out to see if you could possibly help me answer what has been a very difficult question that 2 lawyers and an accountant have have not been able to provide me a definitive answer on. Here it is. At what point did my 2 brothers and I became OWNERS of the home we inherited if: We were designated as Co-Successor Trustees of our moms Revocable LIVING TRUST she created in 2018, she passed away in 2019, we became Co-Successor Trustees of all trusts provided for in her Declaration of Trust from 2018, and we filed a grant deed in 2020 removing the house from being in each of our names in the trust to now being in each of our names as tenants in common? The question of when ownership was established will determine if we qualify for a $250k capital gains exclusion on the sale of the home which requires that we have both owned and had the home as our primary residence for 2 of the previous 5 years before sale. Was ownership established when my mom put the house in the trust in 2018 since we were both co successor trustees and beneficiaries? Or when she passed in 2019? Or when the house was removed from the trust when the deed was filed in 2020 making my brother and I tenants in common? My brothers and I own the property equally share and share alike.

Re: Inherited farm real estate with no appraisal at time of death

Opus 17 — Fri, 20 May 2022 17:19:51 GMT

@CoolFunDad wrote:

Hi Opus17, your replies to people have been extremely informative and I wanted to reach out to see if you could possibly help me answer what has been a very difficult question that 2 lawyers and an accountant have have not been able to provide me a definitive answer on. Here it is. At what point did my 2 brothers and I became OWNERS of the home we inherited if: We were designated as Co-Successor Trustees of our moms Revocable LIVING TRUST she created in 2018, she passed away in 2019, we became Co-Successor Trustees of all trusts provided for in her Declaration of Trust from 2018, and we filed a grant deed in 2020 removing the house from being in each of our names in the trust to now being in each of our names as tenants in common? The question of when ownership was established will determine if we qualify for a $250k capital gains exclusion on the sale of the home which requires that we have both owned and had the home as our primary residence for 2 of the previous 5 years before sale. Was ownership established when my mom put the house in the trust in 2018 since we were both co successor trustees and beneficiaries? Or when she passed in 2019? Or when the house was removed from the trust when the deed was filed in 2020 making my brother and I tenants in common? My brothers and I own the property equally share and share alike.

The definite answer is when you filed the deed change in 2020. Before that, the trust owned the house. Being that you were the trustees, you probably had "beneficial ownership" or "constructive ownership" of the home. This would make you entitled to deduct mortgage interest and property taxes if you paid them even if you were not the legal owners on the deed. I don't think the regulations extend the concept of beneficial ownership to the capital gains exclusion, but I am not 100% certain.

Whether you can be considered the owners "in fact" prior to 2020, for purposes of the exclusion, is something I can't answer. The trust owned the house but you were the trustees after your mom's death, so you owned the house in all but a technical sense after her death. But sometimes technicalities are important.

Have you asked an enrolled agent? This is an accountant who is specially licensed to practice before the IRS.

Additionally, you received a stepped up basis when your mother passed, so the only capital gains you will have is the increase in value from 2019. Do you have an appraisal or valuation from around the time of her death? You will need one.

Lastly, if you are selling due to certain hardship conditions, you can qualify for a partial exclusion even if you owned the home less than 2 years. For example, if one of you is moving for a job, that forces you to both sell the home, then you would both qualify for a partial exclusion.

@Anonymous_

any thoughts?

Re: Inherited farm real estate with no appraisal at time of death

Anonymous_ — Fri, 20 May 2022 17:36:15 GMT

@Opus 17 wrote:
@Anonymous_

any thoughts?

I really do not have much to add, and cannot, without examining the terms of the trust itself.

However, if the trust could be considered a grantor trust (even after the passing of the original grantor), then the trust is disregarded for federal income tax purposes and, per Reg Section 1.121-1(c)(3)(i), the home sale exclusion would apply.

As has already been mentioned, a local attorney, who can examine the trust itself, should be engaged (and obviously one who is proficient in handling these matters).