Discussion:Gain or loss on inheritance - residence
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Discussion Forum Index --> Tax Questions --> Gain or loss on inheritance - residence
| 26 January 2007 | |
| First, mother dies, three children inherit her home. They want to sell property for assessed value. Their basis would be the fair value at the time of the mother’s death. If the amount they sell for is above the value at time of death, there is a gain, but if they sell for less, do they get the loss since it was not their principal residence? | |
Death&Taxes (talk|edits) said: | 26 January 2007 |
| There are several discussions of this issue, but I think the consensus is yes, the estate will take the loss, if none of them have used the property after death. | |
| 26 January 2007 | |
| Estelle Marx, 1945 5 TC 1730 - taxpayer won,
SCA 198-012 IRC Sec. 641(b) and Sec. 165(c) | |
| 26 January 2007 | |
| Hi they will not sell the home "above" FMV because you will use that FMV as your date of death value unless more than say 9 months have passed and the property really has appreciated after death. So under that circumstance you will always have a capital loss. bye | |
Death&Taxes (talk|edits) said: | 26 January 2007 |
| Like the "Headliner" that has caused so many posts here about S Corp Health Insurance, that Service Center Advice has done likewise. It is Service Center Advice, not a position won in Court or settled by law. | |
| 26 January 2007 | |
| I agree. How do we link to a Service Center Advice? I am trying to even find it on the IRS website.
The expenses of necessary sale may be treated as administration expenses for the estate (not subject to 2% on line 15a of the 1041). Necessary is defined as being required to raise cash for the payment of taxes, debts, or estate costs, or to facilitate the distribution of the asset among numerous beneficiaries. | |
| January 26, 2007 | |
| Dennis has logged in on this on another thread or two. Wes is right, if it sells high, that is the fmv...but trying to remember what I learned there from Dennis, I seem to recall that the estate has to sell the home, so that if there is a loss, it can take it. If the home is distributed out and a loss occurs, no one can take it. Hoping he shows up to grade my paper. | |
| 26 January 2007 | |
| Well, the 1 in 3 rule would seem to apply - since the SCA doesn't have as much weight as a tax court case. | |
| 26 January 2007 | |
| SCA 1998-012 All the IRS says is that it depends on specific facts on a case by case basis. You need to pay attention to specific state law. There is a question as to whether the selling expense is capitalized (Most of us do that) or deducted against income. There is also the question of on whose return the loss is recognized. If there is no reason to sell rather than distribute the loss should be taken on beneficiaries personal returns. Personal use taints. Mortgage interest should be taken as investment interest because to be deductible as mortgage interest the property has to be used by beneficiary as either first or second residence. Proximity of sale to date of death matters. The longer it takes to sell the better the IRS case for personal use during the interim. | |
| January 26, 2007 | |
| SCAs from 1997-2003 are available on the IRS website at http://www.irs.gov/pub/irs-sca/
- Tim Doyle, TaxAlmanac Moderator - Talk to me 09:33, 26 January 2007 (CST) | |
| 26 January 2007 | |
| Thanks, Dennis and Tim for providing the links. I'll learn how to do that soon.
When I read the SCA, Dennis, the question asked is not "can someone take a loss" but rather "who can take the loss". Page 3 makes it sound like the heirs take the loss on their 1040s (Petersen v. Commissioner, 35 T.C. 962 (1961), acq. 1962-1 C.B. 4.) | |
| 26 January 2007 | |
| If there is no reason for the estate to sell (You need to know state law)the property is deemed distributed and loss is taken on beneficiaries' 1040. | |
| January 26, 2007 | |
| Kevin:
As part of my effort to locate material that we might import here to TaxAlmanac (allows full content searches as well as links between documents), I put together the following outline of the IRS website. Note that the IRS has their web user interface, but they also have their data stored in a directory structure that can be accessed directly. Feel free to use this page if you'd like. IRS Website Content Organizational Structure
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| 26 January 2007 | |
| Link, my understanding then is that you have to find out whether title to real property vests in the heirs or devisees immediately upon the death of a decedent in Virginia or not. I am not a Virginia attorney and don't practice there, so I don't know the answer. | |
| 26 January 2007 | |
| In determining the FMV on date of death, is the 9 months that Wes referred to a practical guideline? | |
| 26 January 2007 | |
| The "and" in Wes's post is the practical advice. The validity of sale price as valuation decreases with time. You can't do these things in the dark. You have to know what the real estate market is doing in the property area. | |
| 26 January 2007 | |
| Thank you Dennis. I was just thinking about that b/c I've seen where property sold for $500,000, when an appraisal a few months earlier valued the prop at $450,000. Of course this was Hawaii where a single family dwelling in town might set one back over $600,000. | |
Mark Eason (talk|edits) said: | 26 January 2007 |
| In Virginia, you first look at how the property was titled. If it does not pass out of the estate at death, it remains in the estate until sold or distributed to heirs. | |
Mark Eason (talk|edits) said: | 26 January 2007 |
| After reading SCA 1998-012, I will double check if the property vests with the beneficiaries.
Dennis - Any source for treating mortgage interest being investment interest. I have an estate that paid over $10,000 in mortgage interest. What happens with the suspended investement interest in the final year of the estate? What happens when the house is sold (is the house then investment income)? | |
| 26 January 2007 | |
| My understanding was that the sale of the house by the estate would generally always result in a loss which was deductible to the estate. since the house was valued at dod value, assuming it is sold shortly after death and was never income producing, the cost of sale -brokers fees etc could be added to basis and a loss created. reading the SCA has me confused-a loss on the decedents personal residence is not deductible? doesn't make sense as estate assets were used to pay these expenses. especially a taxable estate. estate tax was paid on estate assets which have now been reduced. the SCA is not definitive therefore I am sticking with my understanding. What do you think? | |
| 27 January 2007 | |
| No specific source on investment interest, Mark...but what else could it be? Your claim for loss rests on the property being held for investment. The K-1's used to have write in lines for unspecified termination pass throughs. Now they don't even have a code for other. The authority for the pass through on termination would have to be Sec. 642(h)(2). I've always taken it. On the other hand the IRS does not audit 1041's. I will continue unless Riley says I can't. ProSeries loses the unused investment interest, but there are a lot of other things it does wrong. | |
- Questions from a non-tax-pro were moved to a different discussion, here.
ReadMyLips (talk|edits) said: | 27 September 2008 |
| I'm resurrecting this thread because I have a related situation that I asked in an earlier thread without benefit of the wisdom in this thread.
Client died 3/1/07 and residence was sold 7/1/07, no 706 required and no formal appraisal of the residence as of dod. The proceeds of the sale went into a trust which will disburse all funds in 2008 to beneficiaries that live in Canada. The beneficiaries never used the residence personally during the 4-month period. Residence sold for $1m with $100k in closing costs; I think you can argue that it needed to be sold to facilitate distribution of funds to several beneficiaries, which would be an administrative expense. Right? Or at the very least a capital loss which would flow through to the beneficiaries in the final year. Any new insight or thoughts on this subject? | |
| 28 September 2008 | |
| It doesn't really matter whether the sale was necessary to facilitate the distribution to the beneficiaries since no 706 is being filed. The closing costs are just a reduction of the realized gain or increase in the realized loss. | |
