Stepped-up Basis

[Kurly]

Question? I was asked this told them I would check.

Decedent owned a home, she died in 2008. Home went into the estate administered by a personal representative ( son). Home sold in 2010. Does the estate get a stepped-up basis on date of death? $250,000 exclusion on all profit from original ownership basis to sale? All profit taxed as capital gain?

Home purchased 1980 $50,000
Death 2008
FMV home at date of death $140,000
Home sold 2010 $150,000

Profits will be distributed to four surviving children.

Representative has never filed a tax return for decedent other than Form 1040 in year of death.

Is what I am saying make sence for I have very little cents?

Thanks much

Kurly

[AJsTax]

No tax returns for estate?

what happened to the home in the two year span? Rental? expenses to keep it up?
other income from investments?
Basically, the estate has a stepped up basis , the 250,000 exemption does not apply, the estate can also deduct the cost of the sale on the sch D where the sale is reported as a capital gain and the cost of maintaining the home until sale is administrative expenses.
without knowing what else there is for income we can not guess at total income or loss for the year, but as far as the home goes, there may be a loss if the cost of the sale was normal, around $10,000 on that value. I doubt if there if there will be a profit to show on the k-1s for the beneficiaries, maybe even a loss.

[appelman]

Question 1 YES

Question 1 YES

Question 2 NO (I THINK, since it was sold by the estate, not the owner.)

Question 3 YES (if any, long-term)

[Davc]

and the cost of maintaining the home until sale is administrative expenses.

Disagree. Those costs would be investment expenses subject to the 2% limitation.

[Burke]

See page 22 of Instructions for Form 1041 re Line 15b: Allowable Misc Itemized Deds Subject to 2% Floor: "Miscellaneous itemized deductions do NOT include deductions for: ....Expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in the estate or trust." This would include any expense incurred for the management, conservation or maintenance of property held for the production of income.

[TaxmannEA]

No $250,000 exclusion

The house was the decedent's personal residence, not the estate's The estate treats it as a capital asset.

[AJsTax]

Burke has a good reference

Disagree. Those costs would be investment expenses subject to the 2% limitation.

and the manuals we use clearly state that the maintenance of the property is admin expenses, unless they may happen to fall into rental expense, but that was not part of the OP.

They are itemized deductions.
I do not have time this week to look up more references.

[Davc]

.Expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in the estate or trust."

That's my point. An empty house not in a trust would require the same expenditures. Do you take broker's fees as admin expense?

[Burke]

I usually take the brokers' fees and add them to basis along with all the other expenses of sale, all of which are usually shown on the HUD-1 and handled in the sales transaction at the point of closing. This would reduce gain or increase the loss on Sche D. Ongoing mortgage interest would be deductible under Interest, real estate taxes would be deductible under Taxes, and the other expenses of ongoing maintenance (such as HO Ins & utilities) would be under Misc Itemized Deds Not Subject to the 2% Floor.

[New York Enrolled Agent]

The taxpayer died in 2008 so the following does not apply but I post it for reference.
§121(d)(11)

Caution: Para. (d)(11), redesignated as such by Sec. 403(ee)(1) of P.L. 109-135, is effective for estates of decedents dying after 12/31/2009 as enacted by Sec. 542(c) of P.L. 107-16. Para. (d)(11) was originally enacted as para. (d)(9) by Sec. 542(c) of such Act and later redesignated as para. (d)(10) by Sec. 101(a) of P.L. 108-121.

(11) Property acquired from a decedent.
The exclusion under this section shall apply to property sold by—
(A) the estate of a decedent,
(B) any individual who acquired such property from the decedent (within the meaning of section 1022 ), and
(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1) ) established by the decedent,
determined by taking into account the ownership and use by the decedent.