When would FMV of an inherited home be based on if one of the heirs dies during probate?

[Sewflo08]

• My sibling and I inherited our parents home when our mom passed away in 2019. My sibling has lived in the home all of her life and continued to live in the home after our mom’s passing. We started the probate process in 2022 to transfer the deed either into both of our names, or for my sibling to buyout my portion of the home and ownership would transfer solely to her. Fast forward to 2024. My sibling passed away while the home was still under probate (she dragged her feet and refused to sign necessary paperwork to close the estate). I now have to start a second probate for my sibling’s portion of the estate and will be selling the home. My question is, when determining capital gain for tax purposes, is the FMV based on the date our mom passed away? Or do I now use the date my sibling passed away?
•  
  She also was delinquent on the property taxes for the home and I had to pay ~$9k to bring that up to date. Am I able to deduct this from any capital gain?

[tagteam]

You and your sibling received a stepped-up basis when your mom passed away (presumably a 50% share each).

When your sibling passed away, you received a stepped-up basis for the share you acquired as a result of her passing.

I am sorry for both of your losses.

[tagteam]

The estate should actually reimburse you for the property taxes you personally paid. 

[Opus 17]

The FMV step-up is based on the date of death.  Probate is a legal process to establish the correct chain of ownership, document it properly, and take care of any obligations (like an outstanding mortgage).  But the time it takes to perform that process does not change the step-up, which is on the date of death.  

[Sewflo08]

Thanks Opus 17, but that wasn’t really my question. I don’t want to know if it date of death or date of probate. I’ve somewhat inherited the house twice. First I inherited half when my mom passed and then I inherited the remaining half when my sibling passed. My question was whose death the step up date was based on. 

[Sewflo08]

Ah, that makes sense! Thank you, tagteam. 

[Opus 17]

---

@Sewflo08 wrote:

Thanks Opus 17, but that wasn’t really my question. I don’t want to know if it date of death or date of probate. I’ve somewhat inherited the house twice. First I inherited half when my mom passed and then I inherited the remaining half when my sibling passed. My question was whose death the step up date was based on. 

---

There are two dates of death.  If you inherited half the house with your sister on date X, and the other half when your sister died on date Y, then you inherited half with a basis from date X and half with a basis from date Y.  The probate delay doesn't change things. 

[tagteam]

---

@Sewflo08 wrote:

First I inherited half when my mom passed and then I inherited the remaining half when my sibling passed. My question was whose death the step up date was based on. 

---

The half share you inherited when your mom passed has the same basis in your hands; the fair market value on the date of your mom's passing.

The half you later inherited from your sibling has a basis stepped up to fair market value on the date of your sister's passing.

Essentially, you have a split basis at this point.

[Opus 17]

---

@tagteam wrote:

The estate should actually reimburse you for the property taxes you personally paid. 

---

"She also was delinquent on the property taxes for the home and I had to pay ~$9k to bring that up to date. Am I able to deduct this from any capital gain?"

While it is true that your mother's estate should have paid the taxes, if we are correct that there were only 2 heirs, that means that $4500 would have come out of your sister's share of any cash or property, and $4500 would have come out of your share.  If your sister was still alive, it could be argued that she owed you $4500, but not $9000.  And if, as it seems, you are your sister's only heir, then her estate contains that $4500, so you are getting it back eventually, just not in the way you might have expected.