Deduction Question

[RCE19]

My father in law recently passed away and his estate was equally divided among three daughters.  He owned two homes - one was a primary and the other was a rental property.  The houses sold for $36K under assessed value.  Are the daughters permitted to equally share this loss - $12K each and reflect this on their taxes as a loss?

[DianeC958]

Yes the daughters can share equally in the loss from the sale of the properties.

Loss on inherited home. A long-term capital loss may be claimed for an inherited home that is not used for personal use and sold at a loss, subject to loss limitations. Except from the Tax Book

[RCE19]

Thanks for the reply - would I need to upgrade my tax program - we purchased Deluxe --I am struggling to find the form(s) we need to complete.  What is the max deduction per year for this loss?

[RobertG]

Yes, you would need to upgrade to Premier to report the sales.

Premier supports Form 8949 Sales and Other Dispositions of Capital Assets and Form 4797 Sales of Business Property.

[NCperson]

@RCE19 - note VERY carefully the advise you were given.

While I agree with the answer you were provided (the 3 of you can each take a loss as equal beneficiaries) ,  you can end up with the wrong result. 

It's not the 'assessed value' that determines the cost basis in this situation, it's the MARKET VALUE of the home at the time of death.  Those two numbers can be very, very different, depending on the municipality (for example, in NC these assessed value is normally changed only once every 7 years). 

did you have an appraisal completed at the time of death? 

[RCE19]

No appraisal was done - suggestions on how best to proceed?

[NCperson]

suggestions

- Ask a Realtor what they think it was worth around the date of death

- get on Zillow and they have a property value chart on most propertiess - see what they said it was worth the month of death.  It's not the best, but it is better than nothing.

In the end you want something you can 'hang your hat on' should you ever be audited.  

if you sold it a short time after the death (say 3- 12 months), it's unlikely it was worth more when you father died and  maybe was worth slightly less than you sold it for - that is before sales commission and expenses required to prepare the house for sale which can be added to the value at the time of death (that ultimately reduces your profit / creates a loss, which is to your advantage).  A Realtor can guide you towards something that is justifiable should you ever be questioned.