Sale of House that was transferred prior to death

[ATSMAN]

One of my client just informed me that they sold a house belonging to their parents (both deceased now), and one child was staying there for a while. The closing attorney told them that a 1099-S will be issued and there may be capital gains hence the call to me.

Upon further inquiry the parents transferred the deed to the house in the name of their five kids, 15 years back. When father died, mother stayed in the house with one daughter. Later mother went to nursing home and died there. The daughter and her kids lived in that house most of the time BUT the deed was not changed it remained in the name of the 5 children. Now daughter has gotten remarried and moved in with her husband. House was put on the market and just sold.

They have no record of what parents paid for the house or the improvements made (new driveway, deck, bathroom, kitchen etc.). I asked them to call the county assessor and get the tax value of the building and land 15 years back.

Question: Without the donor's cost available, can I use the tax value of the property from 15 years back as the starting point for the basis? BTW there was no gift tax return etc filed 15 years back when the property was originally transferred.

Since one of the owners (daughter) lived in that home more than 2 years as primary residence can I do a sec. 121 exclusion on her share?

[Clemrick]

Need Parent's basis

You need the price the parent's paid for the house. What it was worth 15 years doesn't matter since it was a gift and now they have their parent's basis. The county probably has the sale price in their records, have them check.

[Burke]

Don't worry about basis at time of transfer to kids. House may have been transferred to kids before the parents' deaths, but if it was not sold until after both parents had died, it got a stepped-up basis as of the second to die (Mother.) So you use FMV as of that date, which shouldn't be too hard to determine. This is because it was a life estate situation, whether it was specified in the deed or not at that time. The mother continued to live in the house (time in nursing home would not count against that) and the FMV would have been included in the Mother's estate when she died. Since it was used personally by one of the children after that time, it will have a taxable capital gain to the 5 owners but it also may be possible for the daughter who was living there to use Sect 121 to exclude her portion of the gain (20%) if she meets the rules. The others would each have a long-term taxable capital gain for their share. If there is a loss, it would not be deductible.

[Lion]

Did parents/then mom have an implied life estate under that state's law? If so, was the house included in mom's estate? Then, you have a step-up.

Otherwise, it was a completed gift with children taking parents' basis -- and maybe a step-up on half at dad's DOD; check your state law for how it was titled.

Extensions!

[DonB]

Our County Treasurer will provide a Chain of Title Information document upon request via email. The document provides dates purchased and prices paid.

[ATSMAN]

Don't worry about basis at time of transfer to kids. House may have been transferred to kids before the parents' deaths, but if it was not sold until after both parents had died, it got a stepped-up basis as of the second to die (Mother.) So you use FMV as of that date, which shouldn't be too hard to determine. This is because it was a life estate situation, whether it was specified in the deed or not at that time. The mother continued to live in the house (time in nursing home would not count against that) and the FMV would have been included in the Mother's estate when she died. Since it was used personally by one of the children after that time, it will have a taxable capital gain to the 5 owners but it also may be possible for the daughter who was living there to use Sect 121 to exclude her portion of the gain (20%) if she meets the rules. The others would each have a long-term taxable capital gain for their share. If there is a loss, it would not be deductible.

Thanks. Is the step up in basis applicable to the entire value at the time of death or just the share of the decedent (similar to a jointly owned property)?

[Burke]

Stepped-up basis applies to entire FMV of house, since the entire value would have been included in the Mother's estate for Estate Tax purposes (even though she may not have had enough to file.)

[ATSMAN]

Stepped-up basis applies to entire FMV of house, since the entire value would have been included in the Mother's estate for Estate Tax purposes (even though she may not have had enough to file.)

Thank You. So getting the FMV of the house on the date of 2nd death (mother) should not be a issue because it was only a couple of years back. I spoke to my client today and she will dig through all the paperwork to find a copy of the deed, or go to the Registry of Deeds and get a copy for me. She lived there after her dad's death with her mother and continued to live there when her mother went to nursing home. In lieu of rent to her siblings, she was maintaining the property, paying the property tax, utilities etc. while she was living there. There was no mortgage on the house. Once she moved out it was not rented or occupied by any family member.

[Burke]

The deed may not be of any help, since it is just a document showing the transfer of ownership way back. However, if yr client was paying the property taxes, she should have received the tax assessment information which could be a good reflection of its FMV at her Mother's death. Most localities now use 100% of value and they would have a record for that year at the municipality.

[DonB]

Thank You. So getting the FMV of the house on the date of 2nd death (mother) should not be a issue because it was only a couple of years back.

www.zillow.com provides their estimate of homes FMV going back 10 years.

[ATSMAN]

www.zillow.com provides their estimate of homes FMV going back 10 years.

It is my understanding that the county can provide tax assessed value going back 10 years from the current fiscal year, at the assessors office and if you need to go back further, they need a few days to get that information.

I know some people have commented that Zillow prices are over inflated. I think I am going to recommend using the tax assessed value at least that is something we can hang our hat on!