Property in Greece.

[Harvey Lucas]

A client called me today.

He wants to sell his 2nd home in Greece, it is FMV $140,000us.

Home belonged to his father and mother.

Dad and mom bought it many years ago for lets say $1000us.

5 years ago Dad and Mom "added clint to title". He then had an "undivided share in the property"

Then 4 years ago his mother died, then 2 years ago his father died.

There are no other assetts in the estate, only the home.

My client wants to go to Greece this summer and sell the property.

What is his basis???

Can we say that his basis is $140,000us because he was "added to title" merely as a formality and to ease title transition later. And that the "adding his name to title" did not constitute a gift because they could have removed him just as easily?

Do we have to look to Greek law to determine if it was a gift or not?

I guess another approach is to say that his when he was added to title he received a gift of 1/3 the property. Then when mom died, he and dad recieved benifit of stepped up basis on 2/3 of the property, then when dad died my client's basis is at least the same as the 2/3rd's amount that it was worth when mom died.

ie, if it were FMV 130,000 when mom died, 2/3 equals 86,667...Dad and my clients basis on that day was $86,667. Well actually $86,667 plus the original $1000 equals $87,667.

Then 2 years later dad dies, the property is worth $10,000 more, so my clients basis is $87,667 plus $10,000 equal $97,667??

If he sells the property for $140,000 less $20,000 sales costs equals $120,000.

$120,000 less basis of $97,667 equal gain of $22,333.

$22,333 @ 15% capital gains equals $3350 tax on his US 1040.

Anyone have any thoughts on this?

HarveyLucas

[jainen]

why I decided to answer

You will certainly need to look at Greek law to understand the gift and the nature of his ownership, as well as to determine at what points he inherited his mother's and father's interests. Isn't the step-up in basis tied to the estate tax, which will create a problem when there is no estate tax in 2010? If so, his Greek basis might be different from his U.S. basis because the property was not included in a taxable estate. My guess is that Greek law is simpler than American, and he will get funny looks just for asking the questions. I really don't know anything about it, which is why I decided to answer.

[Bill Tubbs]

basis calculation

Since I don't know Greek law on ownership, I'll defer on that part. Was there, by any chance, a life-estate? From what I understand, if it had been in the US and there had been a life-estate, the original gift is incomplete so then the client would have been considered as inheriting the property.

Here is my interpretation of the numbers:
If client originally received a 1/3rd interest by gift, and the original basis was $1000, then his basis in the 1/3rd interest is 1/3rd of $1000, which is $333.

When mom died 4 years ago, who inherited her share? If it went 50/50 father/son, then the FMV of her share ($130,000 * 1/3 = 43,333) gets split evenly. Therefore client's (son's) basis in his 1/2 of the property became 43,333 + 333.33 = 43,667.

Then when father died, the son inherited the father's 50% share -- basis increase is $140,000 * 50% = $70,000. So, son's new basis is 43,667 + 70,000 = 113,667.

Bill

[Bees Knees]

TTB, page 21-28, "Unless the surviving joint tenants can prove they provided consideration for their shares, the entire value of property held in joint tenancy is included on Form 706 and receives stepped-up basis."

Since your client was simply added to the title and Mom and Dad were not removed from the title, you have either a joint tenancy situation, or a tenancy in common issue. I assume your client owned the property outright after the death of Mom and Dad. Therefore, that sounds like a joint tenancy to me. As such, your client receives full step up of basis at the death of the last joint tenant, provided your client didn’t pay for any of his interest in the property.

I would probably not worry too much about figuring out Greek law here. It seems obvious to me it was a form of joint tenancy. Thus, for U.S. tax purposes, basis equals FMV as of 2 years ago when Dad died.