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Steve28
New Member

How to show house cost basis step up due to death of spouse.

I am doing my father's 2016 taxes using TurboTax Deluxe Desktop.  He sold his home in 2016, purchased in 1961, his joint owner wife (my mother) died in 2008.  I don't see any entries in TurboTax to show his stepped up home cost basis due to his spouse's death.  I see how to enter his improvement expenses, but not the stepped up cost basis due to my mother's death. How/where do I show this step-up?  Surprisingly, according to Zillow, the house was worth more in 2008 than it sold for in 2016!

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Accepted Solutions
Phillip1
New Member

How to show house cost basis step up due to death of spouse.

The stepped up basis for a spouse depends on which state they lived in. If they were in a community property state (Arizona, California, IdahoLouisianaNevadaNew MexicoTexas, Washington and WisconsinAlaska is an opt-in community property state that gives both parties the option to make their property community property.) the entire basis of the property would have been stepped up at the death of your mother. However, in all of the other states, each spouse has separate basis (half of the purchase price) and the widowed spouse only receives a basis increase on the deceased spouse's half of the property. 

For example, a house bought in 1961 for 8,000 dollars with the first spouse dying in 2008 when market value was 200,000 dollars would give the spouse in a community property state a 200,000 dollars basis. However, in all other states the widowed spouse would have an inherited basis of 104,000 dollars. 

Generally, you will need to make the basis calculations outside of the program (unless the home was a rental or business property with depreciation) and enter the inherited basis as the cost basis. He must maintain records of the inherited cost basis calculations with the rest of his 2016 tax documentation. The basis of the home will be the inherited basis plus the cost of improvements (if they are in a community property state, include only the improvements after your mother passed away. If he lived in another state, include half the cost of improvements prior to your mother's death and 100% of the improvements after her death.)

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tagteam
Level 15

How to show house cost basis step up due to death of spouse.


@anchoragedan wrote:

Though often times inaccurate, you could use the value assessed by the local government property taxing authority. 


Sorry, but that is generally a terrible idea as taxing authorities are all over the map with their assessments and they are made strictly for the purposes of assigning a value for the millage rate multiple.

 

Importantly, the IRS only has to accept an appraisal by a certified real estate appraiser so it is best to go that route in the first place.

View solution in original post

8 Replies
Phillip1
New Member

How to show house cost basis step up due to death of spouse.

The stepped up basis for a spouse depends on which state they lived in. If they were in a community property state (Arizona, California, IdahoLouisianaNevadaNew MexicoTexas, Washington and WisconsinAlaska is an opt-in community property state that gives both parties the option to make their property community property.) the entire basis of the property would have been stepped up at the death of your mother. However, in all of the other states, each spouse has separate basis (half of the purchase price) and the widowed spouse only receives a basis increase on the deceased spouse's half of the property. 

For example, a house bought in 1961 for 8,000 dollars with the first spouse dying in 2008 when market value was 200,000 dollars would give the spouse in a community property state a 200,000 dollars basis. However, in all other states the widowed spouse would have an inherited basis of 104,000 dollars. 

Generally, you will need to make the basis calculations outside of the program (unless the home was a rental or business property with depreciation) and enter the inherited basis as the cost basis. He must maintain records of the inherited cost basis calculations with the rest of his 2016 tax documentation. The basis of the home will be the inherited basis plus the cost of improvements (if they are in a community property state, include only the improvements after your mother passed away. If he lived in another state, include half the cost of improvements prior to your mother's death and 100% of the improvements after her death.)

chrisg0
New Member

How to show house cost basis step up due to death of spouse.

Not sure why this calculation is NOT included in the software, since it already has calculations for adjusting basis for home improvements.  It should also ask whether home was inherited from spouse.
kal2535
New Member

How to show house cost basis step up due to death of spouse.

I was unable to find the part asking if home was inherited from spouse
kfloresnd
New Member

How to show house cost basis step up due to death of spouse.

How do you illustrate what the value of the home is in 2008 if there was not an appraisal completed at the time of the spouse's death?

tagteam
Level 15

How to show house cost basis step up due to death of spouse.


@kfloresnd wrote:

How do you illustrate what the value of the home is in 2008 if there was not an appraisal completed at the time of the spouse's death?


A qualified appraiser can do a retrospective appraisal which determines the fair market value at a specific date in the past (e.g., the date of death).

Pamerich
New Member

How to show house cost basis step up due to death of spouse.

California

 

anchoragedan
Level 2

How to show house cost basis step up due to death of spouse.

Though often times inaccurate, you could use the value assessed by the local government property taxing authority.  If the deceased didn’t keep records of his/her property taxes, the government taxing authority usually maintains records of past valuations and tax liabilities going back several years, which you can view online.

tagteam
Level 15

How to show house cost basis step up due to death of spouse.


@anchoragedan wrote:

Though often times inaccurate, you could use the value assessed by the local government property taxing authority. 


Sorry, but that is generally a terrible idea as taxing authorities are all over the map with their assessments and they are made strictly for the purposes of assigning a value for the millage rate multiple.

 

Importantly, the IRS only has to accept an appraisal by a certified real estate appraiser so it is best to go that route in the first place.

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