Basis In Estate

[BOB W]

Is the anyway to get a stepped up basis on a house sold by an estate that was the primary residence of the deceased? One of the three beneficiaries has a mental issue and required a special needs trust so the house could not be placed in the three names and removed from the estate. The estate finally sold the house. So I'm looking for a way for the estate to get a DOD evaluation.

[Burke]

Sure. The usual method is to use valuation based on tax assessment nearest date of death, but nowadays that may be too high. If there was not an inordinate amount of time between date of death and date it was offered for sale, (less than or close to 1 yr, say) then FMV and basis is usually the contract price it sells for. Most of the time an executor and the realtor try to get the best price. Unless the house was bequeathed in the will specifically to the named beneficiaries in a separate clause pertaining only to the real estate, with the wording that the executor did not have the power to sell, it is an estate asset anyway and would not have been put in the 3 bene names prior to closing if it was going to be sold. If an inventory was filed with the court, a valuation would be on that document, but again if they used tax assessment value, it may be too high. It's just an estimate. Add cost of sale to the basis. You usually have a loss in that case. And that loss passes thru to the bene's on the final K-1's (1041).

[BOB W]

Burke> thanks for your reply. I was under the impression that Estate Valuation was only for the beneficiaries of the estate, not the Estate. Meaning, the Estate used deceased basis if sold by the estate. I quess I was way off on that thinking.

[Bees Knees]

Not to open up a new can of worms, but there is a new can of worms about to open up in just a few short months if Congress does not step in soon.

The estate tax goes away for one year in 2010, and so does the step up of basis issue. In its place, each estate will be allowed to increase basis on a decedent’s assets by $1.3 million with an additional $3 million for property passing to a surviving spouse. The executor will allocate the $1.3 million basis to a decedent’s assets on a new estate tax return. New rules will also allow a decedent’s estate to exclude gain of $250,000 from the sale of decedent’s personal residence without using basis step-up to exclude the gain.

Bottom line, for anyone with an estate in excess of $1.3 million who dies in 2010, there will be a big mess trying to figure basis passing to the heirs.

[BOB W]

I have a followup question on an Estate 1041. The house was sold at a loss and there was NO distributions to beneficiaries. Shoud the loss stay in the estate or should it be put on the K-1 to be reported on the beneficiary's 1040 E?

[Burke]

The loss is a capital loss of the estate and any unused capital loss will be passed thru to the bene's via their
K-1's on the final Form 1041.

[BOB W]

The loss is a capital loss of the estate and any unused capital loss will be passed thru to the bene's via their
K-1's on the final Form 1041.

Burke> Thanks >>>>Final K-1...OK

[Burke]

Don't forget the excess administration expenses also pass thru on the final K-1.

[BOB W]

Don't forget the excess administration expenses also pass thru on the final K-1.

Oops?? Excess what? Like what?

I am deducting the normal administrative expenses against interest income. At this point taxable income is a negative.

[Davc]

Don't forget the excess administration expenses also pass thru on the final K-1.

But only those of the final year. There is no carry over of excess admin expenses from one year to the next.

[BOB W]

But only those of the final year. There is no carry over of excess admin expenses from one year to the next.

OK> No NOL......just final year excess expenses............ Thanks Dave

[Davc]

OK> No NOL......just final year excess expenses............ Thanks Dave

That's not quite what I said. An NOL is posible if an estate or trust has a business or rental that's creating a loss. But admin expenses are not considered business expenses so they're treated differently.