This sound correct on inherited property?

[AZ-Tax]

Inherited deceased's residence house thru court probate. Market value @ Date of Death is $200K (also basis). Sold it for $150K ten months later. My software tells me via schedle D NO capital loss can be taken and NO tax on the 150K

[DaveinTexas]

Does your software

Inherited deceased's residence house thru court probate. Market value @ Date of Death is $200K (also basis). Sold it for $150K ten months later. My software tells me via schedle D NO capital loss can be taken and NO tax on the 150K

Ask related party questions? This could be kicking out the loss...just a thought. Loss should be valid but I would ask the client how he determined the fair market value at death, just to cover your bases (appraisal, county records?).

[Gary2]

Was there any personal use of the property in the interim? Typically, the estate or heirs can take a small loss (due to real estate agent commissions and other closing costs), assuming there was no personal use of the property. Your software may be treating it as a non-deductible personal loss.

On the other hand, I knew the market had been bad, but a 25% decline in value in ten months seems extreme for the last year or two.

[S T]

View point and having clients in Calif-Nevada and Arizona --- drop in value might be realistic - I have had some that dropped as much as 50% based on the Tax Assesor's opinion and various locations.

I would be hopeful in this OP that an appraisal had been made, and generally encourage on an Estate/Trust - Usually can be accomplished through the Probate Court.

No formal appraisal - Not sure - but seems like OP stated went through a Probate Court in AZ that would have to approve Values and Sale - If Value established by Probate Court Records and they approved Sale - it would appear there is a loss. Although I am not clear if this transaction is being reported on 1041 or a Form 1040 -

Gary2 - just FYI - Western Region is generally "suffering" in their Real Estate Values compared to Central and Eastern. I have been working with several clients in the Western Region to obtain Loan Modification under Harp (some of them were not the ones that refinanced and pulled out equity $$ over the years) a drop in the "value" at least for loan purposes and how the lenders are reviewing.

Sandy

[Gary2]

I realize that a few years ago, that sort of dramatic drop was common. But I'd thought that prices had stabilized out west, still leaving many people under water and unable to refinance, but no longer nose-diving. Is that wrong?

Sales are up here, though prices aren't. Maybe if I procrastinate just a bit more, prices will go up enough to cover our costs of getting the old house ready to put on the market.

[AZ-Tax]

More data and question?

On the other hand, I knew the market had been bad, but a 25% decline in value in ten months seems extreme for the last year or two.

The deceased death was Jan 2010 and property was still owned by the deceased's estate until Feb 2011 when then it was transferred over to taxpayer. FMV in Jan 2010 was $200K. Now there was propery taxes and Settle Statemant fees paid by the taxpayer after the transfer but wouldnt the property tax be a Sch A deduction? Also, if the taxpayer receives $150K for an asset the taxpayers has NO actual cost basis by NOT investing any money, how can the taxpayer have a loss?

[appelman]

He inherited the friggin' house!

His basis is the decedent's FMV at DOD. Unless he treated the house as a personal first or second residence during the time he owned it, I'd say he should be able to claim the loss.

[AZ-Tax]

Assessor value or FMV?

I came across this discussion on the Intuit message board that if the inherited house was NOT used as a rental and NOT used as personal, it should be reported as Sch D investment with the date of death value being the taxpayers cost basis. Then if property is sold for loss, taxpayer has capital loss to deduct. Quite the sweet deal for the taxpayer not being taxed on the entire date of death valuation since taxpayer has no out of pocket investment.

http://community.intuit.com/posts/capital-loss-on-inherited-home

In another link, it stated using the County assessor's valuation at date death vs FMV at death.

https://ttlc.intuit.com/post/show_full/bxNgPEs7ur4zeneJe_aKsH

[Gene V]

Pub. 559

I came across this discussion on the Intuit message board that if the inherited house was NOT used as a rental and NOT used as personal, it should be reported as Sch D investment with the date of death value being the taxpayers cost basis. Then if property is sold for loss, taxpayer has capital loss to deduct. Quite the sweet deal for the taxpayer not being taxed on the entire date of death valuation since taxpayer has no out of pocket investment.

http://community.intuit.com/posts/capital-loss-on-inherited-home

In another link, it stated using the County assessor's valuation at date death vs FMV at death.

https://ttlc.intuit.com/post/show_fu...ur4zeneJe_aKsH

From Pub. 559 page 16.

Sale of decedent’s residence. If the estate
is the legal owner of a decedent’s residence and
the personal representative sells it in the course
of administration, the tax treatment of gain or
loss depends on how the estate holds or uses
the former residence. For example, if, as the
personal representative, you intend to realize
the value of the house through sale, the resi-
dence is a capital asset held for investment and
gain or loss is capital gain or loss (which may be
deductible). This is the case even though it was
the decedent’s personal residence and even if
you did not rent it out. If, however, the house is
not held for business or investment use (for
example, if you intend to permit a beneficiary to
live in the residence rent-free and then distribute
it to the beneficiary to live in), and you later
decide to sell the residence without first con-
verting it to business or investment use, any gain
is capital gain, but a loss is not deductible.

[AZ-Tax]

Taxpayer is owner, not Estate

Gene, that section seems to pertain to the Estate that has legal title of the deceased's property. In my case, the taxpayer that inherited the property has legal title of the property. Then sold it for a price less then the FMV at date of death. Was not used for rental, nor personal. Just sat there and when I asked the taxpayer why he let sit, waiting for housing market to rebond.

[okie1tax]

Inherited basis

from Pub 551

Inherited Property



Special rules apply to property acquired from a decedent who died in 2010. See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details.
If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following.

The FMV of the property at the date of the individual's death.

The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For information on the alternate valuation date, see the Instructions for Form 706.

The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.

The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes.

For more information, see the Instructions for Form 706.

[appelman]

Requiescat in pace.

Those cites seem to sum everything up pretty well.

[Burke]

The question here is not whether he can take a loss or not. He can, under the circumstances detailed above. The question is: what was it actually worth in Jan 2010? Tax assessments are not reliable, since they may not be done but every few years and depending on the locality may not be at full value for real estate tax purposes. If no official appraisal was actually done, then some research is in order to determine this figure, based on comparables in the area sold at that time. Just because it may have been listed at probate at its tax assessed value does not mean it was worth that figure.

PS: To answer A-Z, yes the property taxes can be extrapolated from the HUD-1 or if paid outside of closing, and taken on Schedule A. On the HUD-1 there are usually adjustments between the two parties so make sure you account for those.