Adjusted Cost Basis for Home, death of spouse

[Ak5234]

Home purchased in 1993. Community Property state (Arizona). Initial title held as husband and wife joint tenants with right of survivorship. Spouse died in 2006. But looks like death certificate not filed with the county until 2013 when home refinanced by survivng spouse. What year assessment is needed for the adjusted cost basis? Can we use 2012 (the oldest info easily available with online records)? Thanks for any thoughts. Do you need more info to answer?

[KrisD · Accepted solution]

You would need to value it as of the date of death. You'll need to dig a bit and get some 2006 information. 

If sold, the gain on the sale might be excluded. https://www.irs.gov/taxtopics/tc701

If the house is left to an heir, they will get a new adjusted basis. 

https://ttlc.intuit.com/replies/6115444

[Ak5234]

Thank you
1. For 2006 value, would it work if we can get the property tax statements from the local county office? Would that work, property tax statement with the valuation the property tax was based on?  Does anyone have any other ideas? Personal files weren't kept going back that far (had thought only needed 10 years, my mistake).
2. For the adjusted cost basis, yes, I found that other question and answer too. Once we confirm the value in 2006, does that get entered in total in the "Adjusted Cost Basis EasyGuide"?  Such as:
"Description of Increase = Death of spouse"
"Amount = [2006 value]"
3. For the Tax Topic 701, will there be a place in TurboTax where these questions come up to address?  The surviving spouse did indeed live in the house full time for about 11 years before selling in 2018.
(not sure if "comments" also get answered as questions, so have posted this as a new question, apologies if that's not best way to have a 2 part question)

[KrisD]

Yes, the program will ask the questions about how long the owner lived in the home to apply the capital gain exclusion.
Property tax assessment from 2006 is fine. The IRS only requires you make a reasonable estimate and using property tax assessments are reasonable.
You can use the "Adjusted Cost Basis EasyGuide" and yes, the reason of the step up from death of spouse is accurate.

[Ak5234]

OK thank you. I remembered that the property was combined with another parcel, so now I have found the property tax statements (for the two individual parcels before they were combined) back to 2009 online. I will see if we can get the 2006 statements in person or directly from the county.

[KrisD]

Great. If the owner is single, up to 250,000 gain can be excluded.

[Ak5234]

My one question outstanding is on the entry for the "adjusted cost basis." Will we enter the full value of the house in 2006?  Or is it the added difference from the original purchase price or other calculation?

[KrisD]

You can either enter the original 1993 purchase price and then add the ADDITION (difference) OR just enter the 2006 value as the original cost. (if you click "Cost" on the guide, it explains that you can enter the inherited value as the original value), whatever is easier for you.
These numbers go on a worksheet that is not transmitted nor part of your tax return.

[Ak5234]

I need additional clarification on how and where to enter the inherited cost and the date of purchase. The Adjusted Cost Basis EasyGuide has the entry for the "description of increase" and "amount."  But in the reply above it says this may not be needed?  
If we enter the 2006 cost as the original purchase price, then what do we put for the date of purchase?
Thanks, got confused.

[Ak5234]

Follow up, last item needed before filing:  Is it necessary (or is there any benefit) to enter the costs for improvements to the house if we are already below the $250K gain based on sale price and adjusted cost basis?

[KrisD]

If using the EasyGuide, you would enter 1993 as date of purchase and the purchase price. Then add half step-up as an increase and a description as "Half step-up (just half the increased value of the 1993 purchase price compared to the 2006 value).  If you are eligible for the exclusion of capital gain, it won't make a difference. This is information for the TurboTax worksheets, "Description of increase" is not on a form transmitted to the IRS. If you are eligible for the exclusion of gain, the value of the improvements are irrelevant.
The worksheet could be helpful just to have with your tax file.
So enter the 1993 purchase price, half the increase in value as of 2006, and any major improvements, such as a pool or room addition. Selling costs including commissions.
The new basis and selling costs are subtracted from your selling price.
If the capital gains are less than 250,000, the gain is not taxed.
Thank you for using TurboTax.