I loaned my father $95,000 to pay caregiver expenses before he died in 2021. As executor I will be selling his house soon. I received 40% of his estate, and my two siblings received 30% each. Do I personally have tax consequences, or do I simply receive a cash payment from the sale that is 40% of the proceeds plus my $95,000? Also, would my purchasing the house myself, and paying the other heirs their cash amount cause the situation to be different?
The cash basis for the house is about $100,000 less than we should expect from the sale.
Assuming that the house is sold soon after his death all of the proceeds are tax free since the cost basis of the home is its value at the time of his death and inheritance is not taxed. The IRS would impute interest to you if it were a non interest loan but that income to you would be considered a gift since it was a family loan. The amount of the gift would be less than the $16,000 annual gift exemption since the imputed interest rate wound less than 2%. So there are no tax implications for the loan.
The loan would be a liability for his estate so you would receive your $95,000 from his total estate and then you would receive your share of the home sale.
Your purchase of the home is an issue between your and your siblings.
I loaned my father $95,000 to pay caregiver expenses before he died in 2021. As executor I will be selling his house soon....
I am sorry for your loss.
Did you get a date of death appraisal of the property (since your father passed away in 2021 and you have not yet sold the house)?
In the event there is a question, you will need documentation of the fair market value as of the date of death (and an appraisal from a certified real estate appraiser is the best evidence of that valuation).
there may be tax implications for you regarding the loan.
IRC section 7872 - Treatment of loans with below-market interest rates
this section covers gift loans which are any below-market loans where the forgoing of interest is in the nature of a gift. it requires that the forgone interest shall be treated as transferred from the lender to the borrower (as a gift) and retransferred from the by the borrower to the lender as interest (income). There is a special rule for gift loans of less than $100,000. under this subsection, the amount treated as retransferred by the borrower to the lender (as interest income) shall not exceed the borrower's net investment income as determined under IRC 163(d)(4). if less than $1000 then it is treated as zero.
.R.C. § 163(d)(4) Net Investment Income — For purposes of this subsection—
I.R.C. § 163(d)(4)(A) In General — The term “net investment income” means the excess of—
I.R.C. § 163(d)(4)(A)(i) — investment income, over
I.R.C. § 163(d)(4)(A)(ii) — investment expenses.
I.R.C. § 163(d)(4)(B) Investment Income — The term “investment income” means the sum of—
I.R.C. § 163(d)(4)(B)(i) — gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),
I.R.C. § 163(d)(4)(B)(ii) — the excess (if any) of—
I.R.C. § 163(d)(4)(B)(ii)(I) — the net gain attributable to the disposition of property held for investment, over
I.R.C. § 163(d)(4)(B)(ii)(II) — the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
I.R.C. § 163(d)(4)(B)(iii) — so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.
Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.
I.R.C. § 163(d)(4)(C) Investment Expenses — The term “investment expenses” means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income.
I.R.C. § 163(d)(4)(D) Income And Expenses From Passive Activities — Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity.
Thank you for replying. Yes I did get a certified appraisal at time of death. Once costs are accounted for I estimate a profit of $50,000-$70,000 over the value of that appraisal due to housing market increases.