How do you handle an inherited contract for deed? The deceased sold the home prior to his death and willed the balance of the contract for deed payout to my client. Is it there any inherited basis step up or all taxable?
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I loan someone $50K. They pay back $10K before I die. The receivable has a $40K face value that my beneficiary inherits. It seems the value of the receivable is $40K and there is not value for it to be stepped up to."Taxation is the price we pay for failing to build a civilized society." ~ Mark Skousen -
Did the original, deceased return, report all the income? Was an install sale entered into?This post is for discussion purposes only and should be verified with other sources before actual use.
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We are not sure if it was reported by the deceased. He passed away in August, collected the down payment, and 5 months of the contract monthly payments. My client started receiving the payments in Sept. This was given to a good friend, not a member of the family that is aware of his financial concerns. It is an official contract for deed as stated in their copy of the will.Comment
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There is not a step up basis for an installment sale.
You're going to need to get a lot more information, probably from the person that prepared the deceased return.
Was there a taxable gain on the sale?
If so, what is the taxable portion and what is recovery of basis?
If taxable was a 6252 filed, or was all gain claimed by deceased?
What are the terms of the contract?
How much is the principal?
What is the interest rate?
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Sounds like an installment sale.... You need to get in touch with the person responsible for filing the deceased tax return to see how it was handled on his return.Last edited by BOB W; 04-06-2022, 10:38 AM.This post is for discussion purposes only and should be verified with other sources before actual use.
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$30000 at 1.5% interest for 4 years on contract
decendent return was/is not being filed.....down payment $20000...entire household sold together for 50,000
very little social security is only income for decedent
mostly likely no gain, but no other heirs and no estate...my clients were just called to lawyer to receive contractComment
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So the house that was sold was the primary residence with 121 exclusion? In that case the interest is taxable to your client and the principal is inherited property.Comment
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Monthly payment is 644.33
2021 REPORTABLE INTEREST for 4 months $130.21
2022 316.81
2023 204.83
2024 91.14
2025 4.82
This post is for discussion purposes only and should be verified with other sources before actual use.
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gone out of state for a few days...
yes, it was his primary residence for many years....but wasn't sure if that mattered as far as inheritance...should have stated that earlier.
The payments are 517.93/mo and I will report the interest as income and use the 121 exclusion for the principal
Thanks for everyone's helping thinking through this one.Comment
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Your clients return has nothing to do with the 121 exclusion. Just show interest income.Last edited by BOB W; 04-10-2022, 08:54 PM.This post is for discussion purposes only and should be verified with other sources before actual use.
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