Extreme Gain on House

[Snaggletooth]

84 year old woman sold her house and moved in with her daughter. Typical scenario for elderly.

Housing values in Nashville have exploded. I've had a couple customers put their home up for sale, and have a contract by the end of the same day.

Subject woman sold for $315,000. She and her late husband purchased the home in 1955 for $10,000. Gain is $300,000 plus. Exemption for single woman (been widowed for some 10 years) is only $250,000.

Is there any relief for her? What about 1/2 of a stepped up basis when her husband died?? Don't know whether it makes any difference or not, but Tennessee is NOT a community property state.

[kathyc2]

If it was jointly owned, I don't see any reason that she would not receive the step-up. Rough calculation, but if the house was worth 150K as time of husbands death, that would bring in under the 250K gain.

[ATSMAN]

If it was jointly owned at the time her husband died (10 yrs ago) then there is a step up in basis for 50% of the value. The problem will be getting market value data 10 years ago.

Hopefully with the step up in basis for 50% of the value and addition to basis (capital improvements, closing and selling costs) the gain will be less than 250K or not much more than that.

[Snaggletooth]

Thanks for All

The information can be available. The real estate market is so hot in Nashville, they are advertising increases on local TV and radio. For example, in the area of this house the deflator is 157% in five years. (IOW, over 10% increase per year). I have a couple clients who are real estate agents and they can give me a ten year deflator.

People are paying ridiculous prices to buy in Nashville.

Thanks to all.

[TaxGuyBill]

Besides the 50% Step-Up at death, don't forget to add the cost of improvement to the Basis.

[New York Enrolled Agent]

Snags - given that the house was purchased in 1955, you may well have received a 100% (as opposed to only 50%) step up in basis on the husband's death.

See Gallenstein 975 F.2d 286 (CA6) - the IRS will not litigate against this position.

[Lion]

Capital improvements: furnace, roof, central air, screened in porch. Maybe building permits were pulled for improvements so $ amounts on file.

But, first, work with basis to see if you get her under $250,000. As has been said, selling costs and buying costs. Step-up per ownership at DOD, and law at DOD.

[Burke]

If she is 84 now, she was only 23 in 1955. If she can qualify under Gallenstein (see above) problem may be solved.

[TaxGuyBill]

If she is 84 now, she was only 23 in 1955. If she can qualify under Gallenstein (see above) problem may be solved.

If I am reading things correctly, it seems like the Gallenstein 100% step-up only applies if the wife did not contribute towards the purchase of the property. If both spouses contributed towards the purchase, it is not a 100% step up.

[Roland Slugg]

* House cost $10,000 ... in 1955!!
* Sold for $315,000 in 2016 or 2017.
* The sales commission and other selling costs were probably around $20,000.
* The 50% step-up in basis when husband died 10 years ago must have been at least $40,000 or $50,000 (ignoring Gallenstein).
* It's very likely there were additions and improvements during the 60+ years the house was owned.
* I'd be shocked if her basis on the date sold, plus costs to sell, aren't at least $65,000 ... more than enough to reduce her gain to $250,000 and probably a lot less.
* I'd be even more shocked if she ever hears from the IRS regarding her gain on the sale.

All these points have been made by others above. Regarding the property's value when the H died, forensic appraisals can be made for most residential real estate long after the fact. In this case your client probably won't even need to pay for one. The realtor who listed her house can probably make a reasonable "guestimate" of the house's 2006 value and send her a written note about it.

[taxea]

If it was jointly owned at the time her husband died (10 yrs ago) then there is a step up in basis for 50% of the value. The problem will be getting market value data 10 years ago.

Hopefully with the step up in basis for 50% of the value and addition to basis (capital improvements, closing and selling costs) the gain will be less than 250K or not much more than that.

A real estate agent could give you the comps for the father's date of death. The assessors office can provide the assessment for that year. Some calculations would be able to provide you with a good estimate of the FMV for the stepup in basis.

[DonB]

Zillow.com has estimated value of a home on a 10 year graph.