Inherited Property Capital Loss

[lydia33]

Grandchild inherited grandmothers house. The estate had an appraisal of the property. It appraised for $135,000.00 3-07. Grandchild sells house during the year at $100,000. because they just did not want to deal with the piece of property. Do they really have a $35000. loss?

[michaelmars]

YUP 100M PLUS CLOSING COST - ALL LONG TERM

[indyscott]

I think they do have a Capital loss. They acquired the property at the date of death (or alternate valuation date) at it's FMV, ie the appraised value. Their proceeds from disposal of the property are less than their basis, that's a Captial loss.

[lydia33]

That is the way I see it also. I cannot find anything about it in the US Master tax guide.

[Linda Mathey]

Did they sell to a related party?

[Maura]

They have a loss. But it might not be a deductible loss. 2nd Circuit Court and the IRS says the home retains the same characteristics as in the hands of the decedent. IE: it is personal and nondeductible.

[jainen]

>> 2nd Circuit Court and the IRS<<

If'n y'all don' mind, I'd a be intrested in th't pertikerler citation.

My doubts center around the FMV. The estate had it appraised for its own purposes, which apparently did not include sale on the open market. Because the appraisal was vastly higher than actual market conditions, I wouldn't accept it for determining gain or loss unless a substantial amount of time passed or some specific market force operated to alter the value so drastically. And no Realtor in the country would go for that line about "they just did not want to deal with the piece of property."

The FMV value is whatever the market will bear. Property values are dropping, but not 35% in one summer.

[BulldogTom]

Property values are dropping, but not 35% in one summer.

OH yeah? Mabey not over on that beautiful coast where you are, but when you are in between 2 of the top five forclosure cities in the nation (Stockton & Sacramento), it can happen in a hurry. I have lost 40% of the value of my home, most of it in the last 5 months. If I had to sell today, I probably could not get even that much. Facts and circumstances. Location, Location, Location.

It may be that the price drop is valid, maybe not.

Your word of caution is well taken, but don't jump to conclusions.

[lydia33]

It was not a related party. They just did not want to fool with the piece of property and took a below value for it so they would not have to keep it up. That is the way I understand the situation. This is among several things that client inherited from the estate.

[mcb39]

It was not a related party. They just did not want to fool with the piece of property and took a below value for it so they would not have to keep it up. That is the way I understand the situation. This is among several things that client inherited from the estate.

Quickfinders Page 7-16 Inherited Houses....."Loss from the sale of an inherited house is generally a capital loss." However, I would want to see some strong evidence as to the FMV of the house at the time of death and prior to the sale. I have handled these in the past, but never with this large a loss. However, I concede that the housing market is certainly erratic and is probably more so in some areas of the country than others. Just get as much hard facts together as you can to establish FMV and follow your conscience.

[RoyDaleOne]

"The estate had an appraisal of the property" An appraisal for the estate is available.

Ours is not to reason why ours is to tax or die.

[OldJack]

I would take it as a capital loss if the appraisal was a proper independent appraisal for the purpose of taxes.

[jainen]

>>I have handled these in the past, but never with this large a loss<<

No, indeed. Until recently we used to argue that the appraisal couldn't be right because the house sold for so much MORE.

[mcb39]

>>I have handled these in the past, but never with this large a loss<<

No, indeed. Until recently we used to argue that the appraisal couldn't be right because the house sold for so much MORE.

Not always the case. I have had several instances where the children spend a lot of money renovating or "fixing up" the house for sale and are not able to recover their expenses on the sale. Then, add closing costs and realtors fees to the mix and they end up with a loss...........

[jainen]

>>add closing costs and realtors fees to the mix and they end up with a loss<<

Sure, I understand that. But the original post wasn't talking about expenses. That's extra. In fact, even a drop in value isn't really the issue. We are being asked to believe that the owner preferred not to get a fair price, but now wants a tax break because he could have sold it for more than he did.

[Maura]

>> 2nd Circuit Court and the IRS<<

If'n y'all don' mind, I'd a be intrested in th't pertikerler citation.

My doubts center around the FMV. The estate had it appraised for its own purposes, which apparently did not include sale on the open market. Because the appraisal was vastly higher than actual market conditions, I wouldn't accept it for determining gain or loss unless a substantial amount of time passed or some specific market force operated to alter the value so drastically. And no Realtor in the country would go for that line about "they just did not want to deal with the piece of property."

The FMV value is whatever the market will bear. Property values are dropping, but not 35% in one summer.

You asked... http://www.irs.gov/pub/irs-wd/1998-012.pdf

Hope the link works.

[OldJack]

but now wants a tax break because he could have sold it for more than he did.

So what? He sold it and that is the sale price as long as it is not to a related party. Where is the cite that says a taxpayer can't sell his property for whatever he wants to sell it for.

[kcjenkins]

Maura, that's an interesting cite, thank you for posting it. But, it is discussing how the estate should handle it, which is significantly different than the rules for the heir. Once the heir has the property distributed to him or her, they hold it either as personal, if they use it personally, rental, if they rent it, or investment property, if they do neither of the other two. As investment property, it would be eligible to create a capital gain or loss.