Results 1 to 10 of 13

Hybrid View

  1. #1
    Join Date
    Feb 2020
    Posts
    6

    Default Capital Gains Tax on Inherited Home

    My question involves real estate located in the State of: California

    My aunt passed away in April 2019 and left my two siblings and I her home. Iíve lived in the home nine years while she was in assisted living. We sold it this past January for $150K over what it was worth at the time of her death.

    My question is: do I qualify for capital gains tax exclusion since Iíve lived in the home over two years, without owning it? Do I need to meet both requirements? I assume Iíve only legally owned it since DOD.

  2. #2
    Join Date
    Sep 2010
    Posts
    19,602

    Default Re: Capital Gains Tax on Inherited Home

    No, you have to have both owned it AND used it as a personal residence, unfortunately.

    However, I think you are miscalculating the step-up. The IRS gives you nine months to fix a value. If you sell it within nine months(April to January is exactly nine months), then you can fix the FMV at the sales price. You'll likely have a slight loss.

  3. #3
    Join Date
    Oct 2014
    Posts
    7,857

    Default Re: Capital Gains Tax on Inherited Home

    Quote Quoting flyingron
    View Post
    The IRS gives you nine months to fix a value. If you sell it within nine months(April to January is exactly nine months), then you can fix the FMV at the sales price. You'll likely have a slight loss.
    That is not accurate. When no federal estate tax return is filed basis the basis of inherited property is the FMV of the property on the date of death of the decedent. Both the statute and the applicable Treasury Regulation make that clear:

    (a) In general.--Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be--
    (1) the fair market value of the property at the date of the decedent's death,...

    IRC ß 1014(a)(1)(underlining added). This is also stated in the IRS Publication on Basis, Pub 551, in the discussion starting at the bottom of page 9. You will no mention of a 9 month rule or policy stated anywhere in that discussion.

    However, in an audit the IRS will often accept a true arm's length sales price of a property that is sold shortly after the decedent's death to be the FMV of the property in a market where property values are not rising very quickly. But in some parts of this country, and in parts of CA in particular, property values can rise significantly in even 6 to 9 months. In such a case, the IRS will not accept a sales price 9 months later as the basis of the property. If the property that the OP inherited truly did appreciate $150K in just 9 months time the IRS is extremely unlikely to just accept the sales price as the basis of the property. Note that the penalty for overstating basis or misstating value can be rather hefty.

    What you may have had in mind is that the applicable regulation does say that when a federal estate tax return is required to be filed by the estate the valuation done for the return is accepted as the basis for the property. The federal estate tax return is due 9 months after the date of death of the decedent. But very few estates must file a federal estate tax return these days, and thus it's pretty likely that the OP's parent's estate didn't have to file an estate tax return. If it did, it wouldn't want to use the appreciated value of the property as that would increase the estate tax more than any savings in income tax from an inflated basis.

  4. #4
    Join Date
    Jan 2019
    Location
    Pugetopolis
    Posts
    114

    Default Re: Capital Gains Tax on Inherited Home

    How was the value at time of death figured? $150K is a pretty big increase, but certainly plausible.

  5. #5
    Join Date
    Feb 2020
    Posts
    6

    Default Re: Capital Gains Tax on Inherited Home

    Quote Quoting MaltbyMark
    View Post
    How was the value at time of death figured? $150K is a pretty big increase, but certainly plausible.
    Itís been around $1.3 to $1.4 million during the last year, per Zillow. We had several offers & sold for $1.5.

    We also lost Prop 13. The County has still not given us the new property tax bill, but did notify us it was forthcoming. So we donít know what theyíll reassess it at.

  6. #6
    Join Date
    Jan 2019
    Location
    Pugetopolis
    Posts
    114

    Default Re: Capital Gains Tax on Inherited Home

    Quote Quoting ChrisNorCal
    View Post
    Itís been around $1.3 to $1.4 million during the last year, per Zillow. We had several offers & sold for $1.5.

    We also lost Prop 13. The County has still not given us the new property tax bill, but did notify us it was forthcoming. So we donít know what theyíll reassess it at.
    There is a lot of money at play. Using a real estate appraiser for a time of death appraisal is much more appropriate in this situation than Zillow.

  7. #7
    Join Date
    Feb 2020
    Posts
    6

    Default Re: Capital Gains Tax on Inherited Home

    Quote Quoting MaltbyMark
    View Post
    Has the sale closed? I hope you have time to get an appraiser in there before the new owners move in
    Yes the sale has closed. However the buyer is letting me stay in the house through May at no cost.

    The price of the house on Zillow and similar sites had decreased since last April. Although the house is old (1947) itís in a very exclusive area in the Bay Area. We had eight offers.

    Iíll get an appraisal, thanks for the helpful feedback.

  8. #8
    Join Date
    Jan 2019
    Location
    Pugetopolis
    Posts
    114

    Default Re: Capital Gains Tax on Inherited Home

    You've undoubtedly caught on, but just make sure you ask for a time of death appraisal. That'll be old hat for your appraiser.

    1. Sponsored Links
       

Similar Threads

  1. Federal Taxes: Capital Gains Taxes on Fire Damaged Inherited Property
    By lawfacts in forum Tax Law
    Replies: 1
    Last Post: 05-17-2018, 12:09 PM
  2. Federal Taxes: Home Selling and Capital Gains Exclusion
    By Bwilso in forum Tax Law
    Replies: 2
    Last Post: 03-07-2018, 01:49 PM
  3. Replies: 2
    Last Post: 02-27-2017, 11:16 PM
  4. Federal Taxes: Capital Gains Liability on a Home Sold by a Nursing Home Resident
    By Helpme1000 in forum Tax Law
    Replies: 4
    Last Post: 02-22-2014, 10:30 AM
 
 
Sponsored Links

Legal Help, Information and Resources