Retroactive appraisals

[ILLMAS]

Does anyone know if there is a time frame (within IRS guidelines) to do a retroactive qualified appraisal if an informal appraisal (TP used neighbors selling price as a comparable) was used to value an inherited property? 

[DANRVAN]

What is being appraised and for what purpose (depreciation, donation)?

[Edsel]

A very familiar problem.  Taxpayer doesn't want to pay for a competent appraisal, so he ends up with a half-baked, quick-and-easy number that is free.  Most of these guys have been told they needed one, or maybe they haven't.  The result is the same -- they're not going to pay for one.

"Free" is worth every penny.  Commonly used is a realtor's appraisal (almost always too high) or tax assessment (almost always too low).

To answer the question (and to reference Danrvan's observation), the appraisal should be consistent for all purposes (except alternate value arising from farming usage).  Ongoing consideration is the three-year statute of limitations when an estate, trust, or personal return is filed.  IOW, after three years, the IRS will not attempt to adjust the value no matter how ridiculous.  I believe we can assume that the taxpayer cannot change the appraisal for purposes of an amended return after 3 years either.

 

 

[ILLMAS]

10 hours ago, DANRVAN said:

What is being appraised and for what purpose (depreciation, donation)?

Depreciation, property is going to hit the market pretty soon.

[SaraEA]

IRS considers the value of property sold within six months of death to be the FMV.  Some states use a year.

[DANRVAN]

22 hours ago, Edsel said:

 the appraisal should be consistent for all purposes (except alternate value arising from farming usage). 

That is not true.  If a section 2032A election is made for estate tax purposes then the heirs use that same basis.  There is no exception under the consistent treatment rules of section 1014(f) or prop. reg. 1.1014.10.
 

[DANRVAN]

22 hours ago, Edsel said:

.  I believe we can assume that the taxpayer cannot change the appraisal for purposes of an amended return after 3 years either.

I disagree.  You can amend a return after 3 years but you can't claim a refund.

[DANRVAN]

13 hours ago, ILLMAS said:

Depreciation, property is going to hit the market pretty soon.

Still not clear what the issue is.  (I overlooked fact that this is inherited property in your OP).  Your concern is about depreciation of inherited property that is about to go on the market?  So basis was estimated on sale of neighbor's property and depreciation was taken.  Sounds like a 706 was not filed or required?

[Cathy]

It sounds like the client has sold and/or wants to sell property that was inherited and said property was given a low appraised value for probate.  Evidently, the lower value helped the taxpayer at the time, or the attorney thought so anyway.  Also sounds like the client wants to sell the property now and wants the "true" value of the property.  How wonderful of the client that wants to do things the "truthful" way now!!!!! 

I'd say he is stuck with the appraisal that was given to the property at the time of the succession or probate.  

 

Cathy

 

[DANRVAN]

2 hours ago, Cathy said:

I'd say he is stuck with the appraisal that was given to the property at the time of the succession or probate.  

That might depend on the facts Cathy which have not been revealed to us in this post.  The consistent basis rules would apply if a federal or state inheritance tax return is filed.  If that was the case an amended 706 is possible; if worth the trouble.

If no 706 filed then the consistent basis rule is not a problem.  So where in the tax code  does it say the return prepared in the year property was placed in service cannot be amended to recognize the fair market value? Just shooting of the top of my head here....so then why can't taxpayer amend subsequent returns (maybe forfeiting refunds in closed years) to bring accum.  depr. on FMV up to date?

Tax law says basis = FMV.  Tax law is not tied to probate law.  I can't think of any reason why returns could not be amended if beneficial to your client in the long run.

[Lion EA]

Or, Form 3115...

[DANRVAN]

8 minutes ago, Lion EA said:

Or, Form 3115...

That crossed my mind, but off the top of my head I am not sure if a change in valuation is considered a change in accounting method as would be the case if the property was never depreciated.

[Catherine]

But it would lead to a depreciation adjustment if the place has been rented.

[DANRVAN]

15 hours ago, Catherine said:

But it would lead to a depreciation adjustment if the place has been rented.

Catherine I don't think it would be a 481(a) adjustment on form 3115 which allows the taxpayer to switch from an impermissible method of depreciation to a permissible method. 

That would involve changing to a correct method (such as straight line); changing to  a correct convention; or changing to a correct recovery period (such as for property that was never placed in service). 

In the case of a rental that had never been depreciated, you are changing from an incorrect recovery period of zero years to a correct period of 27.5 years.

In  the case of property that was undervalued you aren't changing from a impermissible method to a permissible method of depreciation. I don't know of any other section of form 3115 where that would fit in.