Loss on sale of personal residence by Estate or Trust
Wow, lots of good opinions here.
According to the many posts here and other readings and other tax sites, the answer is all over the board.
Many say that the property becomes investment property in the Trust or Estate because a Trust or Estate has no personal residence so a loss would be deductible because the home is investment property.
Some say the loss on an immediate sale of a personal is still a personal loss and therefore not deductible,
PUB 559 indicates that the treatment depends on how the Estate or Trust uses the home.
If it is used for investment or rental, it is a capital loss. If it is not converted to business use, it is not a deductible loss.
The IRS SCA 198-012 say no to a capital loss deduction on the sale of a decedents home. This would most likely be the IRS auditor's position if you got audited on this.
I am not saying that this is correct but this is the position taken by the IRS.
These positions also seem to be geographical as the West Coast seems to be more aggressive than other areas. The IRS on the West Coast seems to be more aggressive so you have to consider whether you want to incur additional fees to defend the position taken and will the client pay you for this.
In summary, try to include back up for whatever position you take. Let the client know what each position taken could mean if audited. Some clients would be more conservative than others. Either way, consider the beneficiaries and let the executor or trustee make the decision as to which way to go as you may not be the tax person for some of the beneficiaries and they have no loyalty or inclination to support your decision and could possibly sue you. If there are many beneficiares that you don't know, it may be prudent to take a conservative position as they will not be happy campers if they get audited and lose. They will go after you for their fees and who knows what else.
Bob
Wow, lots of good opinions here.
According to the many posts here and other readings and other tax sites, the answer is all over the board.
Many say that the property becomes investment property in the Trust or Estate because a Trust or Estate has no personal residence so a loss would be deductible because the home is investment property.
Some say the loss on an immediate sale of a personal is still a personal loss and therefore not deductible,
PUB 559 indicates that the treatment depends on how the Estate or Trust uses the home.
If it is used for investment or rental, it is a capital loss. If it is not converted to business use, it is not a deductible loss.
The IRS SCA 198-012 say no to a capital loss deduction on the sale of a decedents home. This would most likely be the IRS auditor's position if you got audited on this.
I am not saying that this is correct but this is the position taken by the IRS.
These positions also seem to be geographical as the West Coast seems to be more aggressive than other areas. The IRS on the West Coast seems to be more aggressive so you have to consider whether you want to incur additional fees to defend the position taken and will the client pay you for this.
In summary, try to include back up for whatever position you take. Let the client know what each position taken could mean if audited. Some clients would be more conservative than others. Either way, consider the beneficiaries and let the executor or trustee make the decision as to which way to go as you may not be the tax person for some of the beneficiaries and they have no loyalty or inclination to support your decision and could possibly sue you. If there are many beneficiares that you don't know, it may be prudent to take a conservative position as they will not be happy campers if they get audited and lose. They will go after you for their fees and who knows what else.
Bob
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