Inherited house basis calculation with no appraisal at time of death

[AnnetteB6]

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

[MrChilln]

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

[CoolFunDad]

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.

[Opus 17]

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@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.

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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. 

@tagteam 

any thoughts?

[tagteam]

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@Opus 17 wrote:

@tagteam 

any thoughts?

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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).

[63qh]

I inherited 20-acres of Ohio farmland in December of 2014.   I sold it in February of 2022.  There was no appraisal.  How is my basis best determined? 

[Critter-3]

See if you can get a historical estimate thru a local realtor  or  at the very least the tax accessor's records for that time although those are always lower then the FMV.   Was the estate required to file a tax return or an estate return that year ? 

The IRS assumes you have a zero cost basis  unless you can show something else if you are audited ... so find something that will hold up in an audit. 

[tagteam]

Your basis is usually the fair market value on the date you acquired the property from the decedent (i.e., the date of death).

As @Critter-3 mentioned, you need to establish that basis by some means. A certified appraisal is typically the best evidence.

[Opus 17]

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@63qh wrote:

I inherited 20-acres of Ohio farmland in December of 2014.   I sold it in February of 2022.  There was no appraisal.  How is my basis best determined? 

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An appraiser can usually do an appraisal for an older date by using historical records.

Remember that if audited, the IRS does not have to award you any basis you can't prove adequately, and they could assign zero basis and make the entire selling price a capital gain.  An estimate might be enough (such as from the county extension office), but the better your proof, the better your protection in case of audit.

[lpdiaz79]

@Opus 17    Would really appreciate your guidance on date of Inherited property value.

My brother died Nov 2019 without a Will, wife, or Children.   A care taker scamed him in to signing the Quit Claim Deed over to her on his death bed.    After a court chase which we won,   the property dead was put back in his estate April 2022.  Then Probate determined the rightful heirs in September 2022.    Given these circumstances,    is the  FMV cost basis:

1) Nov 2019 the date he decesed?

2) April 2022 after the trial case was won and the Deed put back in his estate for the legal heirs? 

3) Sept 2022 when rightful heirs determined by probate?

Many Thanks, Larry

[Critter-3]

2019 the date of death

[Opus 17]

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@Critter-3 wrote:

2019 the date of death

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Agreed.