How Many Scoops?

[Snaggletooth]

No, I don't have Baskin-Robbins for a client.

A,B,&C are beneficiaries of F, their father, who is deceased and leaves them to split 300 acres of land. During the course of estate proceedings, some $12,000 is spent on a survey, itemized as follows: $9000 is spent on the boundary of the original farm, and $1000 apiece is spent on the division and legal description for A, B, and C respectively.

The "scoops" here refer to just how much double-dipping of this expense is allowed, if any.

1. Single-dipping. $9000 is all that is allowed as a deduction for Estate Tax purposes, and $1000 apiece is added to the basis of the three tracts.
2. Double-dipping. $9000 is allowed as a deduction for Estate Tax purposes, and the entire $12,000 ($4000 apiece) is deductible as a current operating expense in the continued operation of the three farms.
3. No-dipping. No deduction is allowed for Estate Tax purposes, but the entire $12,000 is added to the basis of the three farms ($4000 apiece).
4. None of the above (Dip your own scoop).

[AJsTax]

$12,000 estate expense.

If there was not estate to execute there would be no survey expenses. Therefor all expenses ,$12,000 is an expense of the estate.
Just the way I see it until someone can change my mind.

[Bees Knees]

TTB, page 6-2 chart says the cost of a survey is added to the basis of land for the buyer and reduces the amount realized for the seller. Thus, in a sales transaction, survey fees are capital expenses and cannot be currently deductible. The chart indicates this to be true for both the sale of a principal residence, and the sale of investment property.

In this scenario, it is an inheritance rather than a sale. However, I don't believe that would necessarily change the character of the expense. When you sell real estate and a survey is needed, it is probably needed for the same reason as getting a survey to pass title to beneficiaries.

Thus, in my opinion it is a capital expense added to the basis of property because even though the expense is a result of the estate, it would also be the result of a sale. I don't go for any of the double dipping stuff. Its one thing or another, not both.

I do, however, reserve the right to change my mind if someone else comes up with a better opinion.

[Davc]

Agree with Bees.

[Snaggletooth]

More Notes

No double-dipping? Makes sense.

However, the govt double-dips. For IRD stuff, (example IRA or installment sale) the dollar value is listed as a taxable item for the estate tax, but then becomes income in the hands of the beneficiaries. I wouldn't mind fighting back with a "double dip" if we could get away with it.

A note also on the surveyor's fee. In the example given, $9000 was spent as a "boundary survey" on F's undivided property, and $3000 spent to subdivide among the heirs and write legal descriptions on the new property. I have been told by an attorney (and that may not be worth as much as some people think), that the $9000 is a deduction for the 706, but the $3000 is not.

His theory is that a boundary survey establishes a protective legal precipice against encroachment from neighbors and this falls into a category on Sch J, Form 706. Sch J is for "Expenses Incurred in Administering Property Subject to Claims." It may be a stretch to think a claim against property would be in the subject matter, but such a claim would be no different in nature than many other type of claims which could arise during probate.

The reverse of Schedule J lists some deductible expenses, but a survey is not listed. There is another section which can be used for items in addition to those listed. The forms and instructions therefore do not support nor deny the deductibility of a boundary survey, although some may believe such a deduction is too much of a stretch.

I very seldom disagree with Bees, and not sure I do this time. But the above thinking is the real reason for the original post.

[Davc]

His theory is that a boundary survey establishes a protective legal precipice against encroachment from neighbors and this falls into a category on Sch J, Form 706. Sch J is for "Expenses Incurred in Administering Property Subject to Claims." It may be a stretch to think a claim against property would be in the subject matter, but such a claim would be no different in nature than many other type of claims which could arise during probate.

Sounds to me he's claiming it's an expenditure for "perfecting title" which is also capital.

[Bees Knees]

I don't see any difference between a survey for an estate and a survey for a sale. Both are done to establish legal boundaries when title to property changes hands. Subdividing is merely a more complex form of property transfer. Dividing the property among beneficiaries is no different than dividing up property to sell to multiple buyers. You can use legal mumbo jumbo all you want to justify why the expense is necessary for an estate. I could say the same justification under similar circumstances applies for a sale.