Investment Property or Personal?

[Kram BergGold]

T/P primary residence is in a trust. T/P died in Jan 07. House was vacant till Jan 08. In Jan 08 her son moved in to work on and oversee the improvements on the house, readying it for sale. In Aug when the improvements were completed he moved out. The house has not been sold yet. Can this house be treated as investment property or is it personal becasue the son lived there while fixing it up?

[SFBOB]

Have Property Appraised For FMV DOD

Property is now taxed in the form 1041.If sold the sale will be capital gain or loss. No loss allowed because it was and still is the personal residense of the taxpayer [deceased] not the son.
I have in the past, taken a loss on the K-1 to the beneficiarires schedule A not subject to 2% in the final year of the estate, due to fix up expenses and realtor commissions. Several of my associates have disagreed with me; I guess I have been lucky, no audited returns on this agressive position.
If the property is rented, the likly step up in FMV will provide a nice depreciation deduction.Think about possible vaue to the beneficiaries if rented for furture income. Will depend on the rental market in your area. Good luck with your Estate work.

[Gretel]

Property is now taxed in the form 1041.If sold the sale will be capital gain or loss. No loss allowed because it was and still is the personal residense of the taxpayer [deceased] not the son.
I have in the past, taken a loss on the K-1 to the beneficiarires schedule A not subject to 2% in the final year of the estate, due to fix up expenses and realtor commissions. Several of my associates have disagreed with me; I guess I have been lucky, no audited returns on this agressive position.
If the property is rented, the likly step up in FMV will provide a nice depreciation deduction.Think about possible vaue to the beneficiaries if rented for furture income. Will depend on the rental market in your area. Good luck with your Estate work.

I think as soon as the residence ceases to be a residence because of death, former residence will become investment property and loss is allowed for benis. How could an estate have a personal residence?

The original posts asks about becoming a personal residence again because beni lived in there to do improvements. Seems like a long time to me to do the improvements. Probably depends on facts on circumstances. If he saved an substantial amount of money for labor and the period he lived in the house sounds reasonable I would tend to not treat as personal property.

[Bees Knees]

I think IRS Pub 559 gives a good answer on page 16:

Sale of decedent’s residence. If the estate
is the legal owner of a decedent’s residence and
the personal representative sells it in the course
of administration, the tax treatment of gain or
loss depends on how the estate holds or uses
the former residence. For example, if, as the
personal representative, you intend to realize
the value of the house through sale, the residence
is a capital asset held for investment and
gain or loss is capital gain or loss (which may be
deductible). This is the case even though it was
the decedent’s personal residence and even if
you did not rent it out. If, however, the house is
not held for business or investment use (for
example, if you intend to permit a beneficiary to
live in the residence rent-free and then distribute
it to the beneficiary to live in), and you later
decide to sell the residence without first converting
it to business or investment use, any gain
is capital gain, but a loss is not deductible.

I think since the son lived in the house for 8 months, it would be a stretch to claim it was only for repair purposes. The son was using it as a personal residence, thus disqualifying it for deductible capital loss treatment.

Had the son lived someplace else and the estate never let any beneficiary use it as a residence, then a loss could be deductible as a capital loss.

[Kram BergGold]

Thanks for the site, but I disagree

Bees,
The site makes it clear that if the intention is to sell it is investment property. Since the son was only there for fix up purposes and moved out once the fix up was complete and as the house is vacant and on the market for sale I feel it is investment property and will take the investmetn deductions. At the very least, this is gray enoughh to go for..

[Bees Knees]

Bees,
The site makes it clear that if the intention is to sell it is investment property. Since the son was only there for fix up purposes and moved out once the fix up was complete and as the house is vacant and on the market for sale I feel it is investment property and will take the investmetn deductions. At the very least, this is gray enoughh to go for..

I agree with you, IF the son only intended to fix up the property and not live there as his residence. Intent is subjective. One's intent after the fact often changes. Living there 8 months makes this like fishy.

[Burke]

If the house required extensive upgrades or repairs, living there was the best option to coordinate those, especially if son lived out of town or out of state. Saved a lot of headache to just move in while this was being done, trust me, I have done it. If he still kept his original living quarters, I would have no problem treating it as investment property since it was their intent to sell. He may have stayed also to show the property.