FMV of Inherited House but with a twist

[Anonymous_]

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@Carl wrote:

Repairs and maintenance are ordinary responsibilities of every property owner and there are no special tax considerations for repairs and maintenance.

The reason this is true in this case is because the repairs/maintenance was not done between renters. It was done after the last renter moved out prior to the sale.

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There is no indication, anywhere in this thread, by @Candymancan, that the property was held for rental use nor rented at any time.

On a somewhat unrelated point, if real property is held for rental use, then just because a renter moved out does not necessarily dictate that a true repair cannot be deducted an expense. If the property continues to be available for rent, such expenses can be deducted.

[Opus 17]

The actual final rules are here.

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

An improvement is characterized as a betterment, an adaptation, or a restoration.  I suppose I was lazy in saying an improvement "adds value", but that's a shortcut for "betterment" which is a bit harder to define.   @Carl 's example of an in-ground pool would be an adaptation to a new use even if it doesn't raise the property value.

What surprised me in reading this was the definition of "restoration" as an improvement that is added to basis.  The example the IRS gives (farm outbuildings) applies to commercial property, but the rules should apply equally to personal property like a home.  Then the question would be, was the work needed to be done on the house sufficient to count as restoration, or as repairs.  I think if you want to call the work a restoration, you would want the support of a local accountant.  My lay opinion is that the work @Candymancan described was not extensive enough to count as restoration (I'm thinking, restoration after a fire or flood), but that can be reviewed by a local expert if they want to claim it. 

[Anonymous_]

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@Opus 17 wrote:

The actual final rules are here.

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

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That link does not contain the actual final rules but, rather, a summary written by who-knows-who at the IRS. The Regulation that would be directly applicable in this instance, with respect to improvements, would be 1.263(a)-3(g)(1).

(i) In general. A taxpayer must capitalize all the direct costs of an improvement and all the indirect costs (including, for example, otherwise deductible repair costs) that directly benefit or are incurred by reason of an improvement. Indirect costs arising from activities that do not directly benefit and are not incurred by reason of an improvement are not required to be capitalized under section 263(a), regardless of whether the activities are performed at the same time as an improvement.

(ii) Exception for individuals' residences. A taxpayer who is an individual may capitalize amounts paid for repairs and maintenance that are made at the same time as capital improvements to units of property not used in the taxpayer's trade or business or for the production of income if the amounts are paid as part of an improvement (for example, a remodeling) of the taxpayer's residence.

The issue might then be whether the amounts spent (in total) constitute a "remodeling" which, of course, is nowhere defined.

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@Opus 17 wrote:

@Carl 's example of an in-ground pool would be an adaptation to a new use even if it doesn't raise the property value.

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That was my example to illustrate that an "improvement", "betterment", "adaptation", et al does not necessarily require that an appraiser, for instance, would appraise the property at some increased "value" in order for it to qualify for federal tax purposes. The cost is the cost and that cost can be added to the basis regardless of whether the property's "value" is increased. 

[Anonymous_]

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@Opus 17 wrote:

My lay opinion is that the work @Candymancan described was not extensive enough to count as restoration (I'm thinking, restoration after a fire or flood), but that can be reviewed by a local expert if they want to claim it. 

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I agree that a local expert should be consulted to review all of the facts surrounding this scenario.

My opinion would be that Section 1.67-4 could apply in the sense that the costs might not have been incurred if the property were not held in the estate (e.g., @Candymancan indicated that the expenses were incurred "due to the situation of the death"). However, it is difficult to provide a firm opinion without knowledge of all of the relevant facts.

[dmertz]

Regarding the Roth IRA contribution that is an excess contribution due to being over the MAGI limit, instead of obtaining a return of contribution you can instead ask the custodian to recharacterized the contribution to be a traditional IRA contribution instead, which may or may not be deductible.

[Opus 17]

While the IRS summary might have been written by "who-knows-who", it's a summary of the actual rule making that was published in the Federal Register. 

https://www.federalregister.gov/documents/2013/09/19/2013-21756/guidance-regarding-deduction-and-cap...

[Anonymous_]

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@Opus 17 wrote:

While the IRS summary might have been written by "who-knows-who", it's a summary of the actual rule making that was published in the Federal Register. 

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The summary is just that and nothing more, regardless; the Code and Regulations take precedence.

The order of precedence is not generally dependent upon the method, mode, and nature of publication. The summaries (and instructions) are published in an effort to make the legislation and regulations more easily comprehensible to lay people.

[fanfare]

gain on inherited property is always a Long Term Capital gain.

after subtracting closing costs, broker commissions and remediation,

your taxable amount should not be oppressive.

@Candymancan 

[Candymancan]

Thank you to all that have replied.  It's most appreciated.  The cleaning and the disinfecting of the house, by biohazard professionals was done because unfortunately, my father-in-law passed away and it was a few days before we were called that he passed away.  Without going into details, he did not use air conditioning and it was in the middle of summer (80-90 degree and humidity).  The house had an odor and many flying insects in the house.  Once we called in some specialists to look at it, the house was deemed unlivable and a bio-remediation and sanitizing/disinfecting effort had to be done.  They used biohazard suits...etc. due to the airborne bacteria.  I even got sick for a few days afterwards as I did some work there before the specialists showed up but kept my wife and mother-in-law out of the house.  After the clean-up was performed, the walls/ceiling were painted to provide a proper seal as well as new carpet installed.

Many folks mentioned our realtor providing a comparative analysis.  Would that be enough eventhough that would have been done in the May/June timeframe in 2022 vs time of death in late August.  Or would the value have to be done on properties in the area sold in the 1/2 half of 2021? 

That's my last question.  Again thank you all for your replies.

[rjs]

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@Candymancan wrote:

Many folks mentioned our realtor providing a comparative analysis.  Would that be enough eventhough that would have been done in the May/June timeframe in 2022 vs time of death in late August.  Or would the value have to be done on properties in the area sold in the 1/2 half of 2021? 

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It's best to have an actual appraisal. A professional real estate appraiser can give you a retroactive appraisal as of the date of death. The retroactive appraisal will cost a small amount more than a current appraisal.