sale of inherited house

[nwtaxlady]

Mom passed away in October 2010 and all Mom had was a house and a bank account, that is it and left it to her 3 grown kids. The house was sold this year January 2011 and proceeds split 3 ways. What do we do with the sale?

Split it up 1/3rd and each report 1/3rd on their own tax return?

And what is the basis? FMV on Mom's Date of Death?
Or is it Mom's basis?

[Dusty2004]

Not really an easy answer

Mom passed away in October 2010 and all Mom had was a house and a bank account, that is it and left it to her 3 grown kids. The house was sold this year January 2011 and proceeds split 3 ways. What do we do with the sale?

Split it up 1/3rd and each report 1/3rd on their own tax return?

And what is the basis? FMV on Mom's Date of Death?
Or is it Mom's basis?

When did the house go to the kids? At Death? Did she sign it over to them earlier? Did the kids sell the house or did the estate sell the house?

Dusty

[nwtaxlady]

Mom's house.

The 3 kids inherited the house when Mom died. Then the kids sold the house.

[arlo]

My 2 cents

My mom died owning the house. House was sold and split with children.
The value to the children was the sales price. They did not report any income because
it would not have been income to my mother if she had sold the house when she was alive.

[ChEAr$]

My mom died owning the house. House was sold and split with children.
The value to the children was the sales price. They did not report any income because
it would not have been income to my mother if she had sold the house when she was alive.

However: there is gain/loss on the sale of an inherited house as measured by sale price minus FMV as of DOD plus sale expenses, which many times translates to a deductible capital loss and that loss is longterm because that's what pertains to inherited property.

[BOB W]

However: there is gain/loss on the sale of an inherited house as measured by sale price minus FMV as of DOD plus sale expenses, which many times translates to a deductible capital loss and that loss is longterm because that's what pertains to inherited property.

Isn't 2010 a special year where you have to elect to get a step up in basis by filing 1041 and the election?

[Gene V]

Isn't 2010 a special year where you have to elect to get a step up in basis by filing 1041 and the election?

The way I understand the process.
You would make the election on form (8939)(still in draft form) if the estate is over $1.3 million. The form would be sent in my itself.

[Davc]

The rules changed (Again) in December.

[luke]

I agree

with Harlan - house has "basis" of FMV at Mom's DOD

[nwtaxlady]

that's why I am confused

The rules changed (Again) in December.

Used to be FMV at DOD. Then talk about if died in 2010, then no step-up in basis and would have Mom's carryover basis. But now did this change again in December?? So in this case, there is no Estate over 1 Million. All she had was a house and a couple dollars in the bank. That is it. The 3 kids inherited the house Sept. 2010 when Mom died. They just sold it and split it among the 3 of them. So what would be their cost basis?

[nwtaxlady]

no estate over 1.3 million

The way I understand the process.
You would make the election on form (8939)(still in draft form) if the estate is over $1.3 million. The form would be sent in my itself.

The estate is not over $1.3 million. Only had house (sold for $100K) and a couple dollars in the bank. So then what is the procedure?

[JG EA]

The estate is not over $1.3 million. Only had house (sold for $100K) and a couple dollars in the bank. So then what is the procedure?

Here is the way I understand it. Now, after the new tax law, the estate is not taxed if $5,000,000 and you get DOD valuation. If you ELECT to you can use the old no estate tax rules and file the forms for basis. If you do not ELECT then just look at everything the old way except a higher limit. I haven't done my extensive reading on this so I hope this is correct.

[Gene V]

Fmv

I agree with above post. Just use FMV at DOD for base.

[Burke]

Here is the way I understand it. Now, after the new tax law, the estate is not taxed if $5,000,000 and you get DOD valuation. If you ELECT to you can use the old no estate tax rules and file the forms for basis. If you do not ELECT then just look at everything the old way except a higher limit. I haven't done my extensive reading on this so I hope this is correct.

The new law takes effect 1/1/2011. It is temporary for two years, 2011 and 2012. Max rate of 35% and $5 million exemption per person. The new rules will sunset after 2012. Beginning in 2013, there will be a $1 million per person exclusion with a 55% estate and gift tax rate unless further legislation is enacted at that time. An estate of a decedent who died in 2010 (no Federal Estate tax and no stepped-up basis) can now ELECT to use the 2010 law or the new 2011 rules. So, 2010 estates that are under $5M will generally elect 2011 rules to get the full step-up cost basis equal to FMV of decedents' assets. This eliminates cap gain taxes. In this case, kids should show 1/3 proceeds and 1/3 FMV plus proportionate costs of sale as basis on Sche D. Usually results in a deductible loss.

[Burke]

My mom died owning the house. House was sold and split with children. The value to the children was the sales price. They did not report any income because it would not have been income to my mother if she had sold the house when she was alive.

Whether it would have been income to your mother does not enter into the equation. The sale resulted in no income to the children due to stepped-up basis rules.