Client inherits house (DOD 5/16/08). There was no executor and no appraisal. Client estimates the value of the house at $120,000. Seeking a quick sale client lists the house for $105,000. Client finally sells the house 11/14/08 for $95,000 at a time some people were practically giving away real estate. Am I bound by the $95,000 for basis or can I argue a higher figure (105,000) because of the distressed market conditions? Thanks.
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My Two Cents
If you or your client can get a Real Estate Agent to provide you with two or three nearby similar houses that sold around the time of the decedent's date of death I would be comfortable using them as a rough guide. Of course for your purposes it's enough if basis is equal to or more than sale price (which is unlikely to be disputed) because sale of an inherited house at a loss is personal and at no gain would have no tax consequences anyway. The only thing to remember is that in a market where house values are appreciating life would be tougher. The IRS and the courts would not try to argue that there was zero basis but they would accept only the lowest believable basis. It just so happens that in this case that doesn't hurt your client. -
I can understand
where you're coming from. I like to obtain the highest refunds possible for my clients too. But, I would suggest you do some re-trenching when looking at the original basis of the home. The least I would do is contact a reputable real estate agency and sit down with an agent and come up with a realistic value of the home on DOD. That's the least. I've done several estates with homes and the first (or maybe second or third) thing I tell my client is to obtain an official appraisal of the home. From there you can secure "loss" for the K-1's if it sells for less than market value. But at least you've got a starting point to argue w/IRS in the event that happens.
Good luck.
LarryComment
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Thank you. As usual I find out 'after the fact' (the same client bought $6,500 worth of Energy Star storms in Nov ,08). I tell my clients to get an appraisal as soon as possible, or at least do some research online. I will tell the client the situation now and they contact an agent if they wish. Otherwise I will use the alternate valuation of $95,000. Thanks again.Originally posted by Larry M View Post
Erchess, there was no personal use of the property so we have a deductible loss in either case.Comment
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Curious
Who sold the house, the heir or the estate? I would not have commented on what an estate can do because I don't know. I was not under the impression that the taxpayer used the property but I was under the impression that the taxpayer took ownership of the house and then sold it. I was definitely of the opinion that when an individual sells an inherited house at a loss without first putting it to use as say a principal residence or a rental property or a business location then the loss is personal. OP seems to have treated the house in the same manner as if it were say a painting or some shares of stock. I thought houses got different treatment. I have to say that I have never actually handled a return for someone who sold real property (inherited or not) at a loss but given the times it seems likely that I will in the future.Comment
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Generally, if it is not used for business, rental or personal use, but simply sold as soon as feasible after inheritance, it is considered investment property. Cap gain/loss. In most cases, the loss is simply expenses (like real estate commision, if any.)Comment
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I may be wrong, but I agree with Burke. Normally in this situation I would take a loss based on the cost of sale. In this case, because of the situation I feel that the sale was a type of "distress sale". I am leaving it up to the client to show me that is the case.Originally posted by erchess View Post
I have seen the IRS take the position that if there is not an appraisal and the property is sold within 6 months that the sale price is the basis.Comment
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The last one I did
was an estate. House had formal appraisel. Sat on the market for several months while the heirs reduced price month by month. It finally sold at (I don't remember exactly) a loss of some $30,000. The loss was divided to the 3 heirs and put on their K1 at $10,000 loss and then transfered to their personal sch D.
Now that is how I did this one just FYI.
Hope everything goes well for you!!
LarryComment
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Thank You Burke
It could well be that at some point I will face the sale of an inherited house and I have learned that the rules are more favorable to the taxpayer than I had thought.Originally posted by Burke View PostComment
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