Son inherits Property @ Dad's death with no Will or Trust

[Boma Osime]

I have a situation where a Son inherits the deceased Father's property, and there was not established will or trust. The son inherits the property and sells it but t a loss because of the condition of the property. He spends money to bring it up to a certain standard so he could sell and still sells it at a loss. How will this transaction be reported in a tax return. Will the tax form 706 be used or the inheritor report this transaction on his return? I am unsure of this because there was no will or trust.

[Uncle Sam]

How was the property sold when there was no official document to prove that he was a beneficiary and had power to act for father? Any debts on the property?
Did the son obtain an appraisal on data of death of father? Does the son even know when the father acquired the property and how (purchase, inheritance, gift)?
You are not providing sufficient facts for a reliable response. We also don't know whether there's a requirement for a Form 706 unless we know the total of
the father's assets on DOD.

[Boma Osime]

He hired a lawyer to complete the legal work to produce the paperwork for him to be recognized as the beneficiary and he was an only son. In Texas the direct descendants and community property rule kicks in if there is no will, fortunately the father had no wife. The balance owed on the home was paid from the sales proceeds. He had access to act on behalf of the deceased ones he got the legal authority from filing certain papers. I asked him if he knew the basis of the house, what he said was the home was run down and and needed repairs to put it for sale. He also said the home was appraised however it was sold for less than what homes were going for in the neighborhood because of the physical condition of the home. Basically homes were selling for $300k pus but he sold for $179k but made some repairs before sale. Does this help?

[Uncle Sam]

Did you see a copy of the appraisal certificate? Did the son live in the residence as his primary residence? If so, for how long?
The repairs he paid for before the sale - was that prior to or after the appraisal?

[Rapid Robert]

I don't see how probate vs. will/trust makes any difference for your client's income tax purposes, nor does it matter how the father acquired the property or what his basis was. Nor does amount of mortgage matter for income tax. Son gets an adjustment of basis to FMV at date of death. It is not uncommon to sell an inherited residence at a slight long-term capital loss in these circumstances (for example real estate agent's commission paid, etc). So yes an appraisal of value at DOD is important to have.

Filing an estate tax return is a different matter, but if son is the fiduciary/executor I suppose it would be his responsibility. But again, not necessary unless decedent's estate is the multi-million dollar range. A form 1041 would be required only if there was other taxable income received by the estate.

[kathyc2]

I asked him if he knew the basis of the house, what he said was the home was run down and and needed repairs to put it for sale. He also said the home was appraised however it was sold for less than what homes were going for in the neighborhood because of the physical condition of the home. Basically homes were selling for $300k pus but he sold for $179k but made some repairs before sale. Does this help?

FMV is defined as what a willing buyer and willing seller agree on. It doesn't matter what other houses in area were selling for if they were in good repair and the house sold wasn't. 300K to 179K is a 40% difference, so unless there were extraordinary circumstances it's not logical for there to be that much of a loss. What was the appraisal amount, and did it have adjustment for condition? Was is an actual appraisal or realtor CMA? What was the time frame between DOD and sale? What was the house originally listed at? Were there other offers on the house? Just some of the things that need to be taken into account.

[spanel]

Remember your cost is the value of the property at the time of death. In most cases if you sold it shortly after the time of death, it was only worth what it brought in.

In any case, you will need an appraisal for the time of death and that should get you a better idea if you actually lost money. Most likely all you "lost" was closing costs.

Chris

[Lion]

Also, was the house in the son's name or still in the estate at the time of sale? So you know if you're reporting the sale on the estate's Form 1041 or the son's 1040.

[Boma Osime]

Thank for your help, following up to know if the house was sold in son's name or father's to determine what form to use and also see the DOD, and other sale documents. The contributions were very insightful for me.