Inherited Personal Residence-Sold at Loss. Deductible?

[Burke]

In 2010, it should have been relatively easy to get a FMV based on comparables. And you can have your client check real estate sale records at that time for properties of like-kind to see what the market was. That's what a Realtor does, albeit a simplistic approach but probably fairly accurate. Appraisers do the same thing as part of their process. That FMV probably isn't accurate, as it still hasn't sold two years later at that price even with improvements. So the other 4 are done, and since they sold to a related party, probably have no loss to claim. The remaining heir would use FMV as determined above, plus his costs to calculate any profit/loss. Are you saying the other 4 intend to share in the net proceeds? The sole owner would have to claim it all.

[JohnH]

Well, the buyout of the other 4 was just a effort to simplify the task for the 80% heir. The buyout took them out of the picture and out of the decision process. Everybody went into the deal knowing that if he netted more than $160,000 the other heirs would be giving up a little profit, and he knew that if he sold for less than $160,000 net, then he would be eating the difference.

Netting everything out, even if he sells for $140,000 for example, he only lost $4,000 by buying them out early. He felt as though it was worth it just to have freedom to make all the decisions without getting everyone's approval. Knowing the situation, I think it was a wise decision on balance, unless of course he has to sell for $100,000 for example. But he has a price point at which he will convert it to a rental if he can't sell.

[Burke]

Don't feel like you are locked in on the FMV which was given on the inventory. That's for accounting purposes and has to be dealt with, but it is not for tax purposes nor taxable gain/loss issues if you have a reasonable basis for showing otherwise.

[KC-CPA]

Inheritated Personal Residence Sold at a Loss

I have a client whose Mom died in April of 2011. He got an appraisal for her home in May 2011 and it shows $145,000. He sold the house in Jan 2012 for $55,000. He received a 1099-S for the $55,000. He never used it as a personal residence and had the original intent from his Mom's death to sell the property.

Based on what I have read this can be considered a Long term capital loss of $90,000 ($145,000 - $55,000) since it is an inherited property? or is the fact that he only held it for less than a year relevant?

Seems like a large decrease in valud over less than a years time but has has all the documentation.

Thanks.

[Burke]

His holding period is irrelevant. It is long-term gain/loss for tax purposes since it is inherited property. This has been pretty common over the last 3 years due to the difficult housing market. I have one from last year which was sold for a loss of $88,000. Divided between 2 heirs, it will take them 15 yrs to use it all up at $3K per year. Got one this year sold within 10 months of death at auction for a loss of $79K. The first one was out of state and it came through on an estate K-1 from another preparer The second one I know the house; the deceased was my client. I've been in it. And I did the estate tax return. Somebody is getting some good deals on these fire sales.