1041 estate sale of home

[fliszt]

I have filed a 1041 Estate and now believe I did it wrong and will have to ammend. Is the sale of home handled the same in an estate as it would be handled on a 1040? Deceased client's home appraised at $282,000 at time of death. Son put home on market and finally lowered price 2 months later to $254,000 just to move it. Is the $28,000 an actual loss on the 1041 sched D and then carried over to beneficiary on K-1 for him to use on his 1040? Or is the loss not a deductible loss to be used by the beneficiary via the K-1? Sorry to post this question as I should know the answer, but cannot find a definitive answer in TTB or Pubs.
Thank you for help.
Larry M

[jainen]

It depends

It depends on the validity of the appraisal. If you just had the real estate agent saying, I think we should try for $282,000, then I would say the actual sale price was better evidence of the true market value. If it was a real, licensed and qualified appraiser, then I would allow the loss because the standard is neither buyer nor seller under any pressure, and in this case the son needed to take a below-market price to sell quickly.

[Bees Knees]

Sorry to post this question as I should know the answer, but cannot find a definitive answer in TTB or Pubs.

This is one of those areas you won't find agreement on. The IRS says you can't deduct a loss unless the property is converted to rental or investment property. Loss on personal use property is not allowed.

Some think it automatically is converted to investment property at the owner's death, as long as none of the beneficiaries use it as a personal residence. IRS seems to indicate something more has to be done to call it investment property. I don't think you will find a clear answer on that one.

[Kram BergGold]

Time?

From your post it is not clear how much time passed between the death and the sale. If it was two months I think a $28,000 drop in value is out of line. I recently had an examination where the value of an inherited house came up. The IRS allowed the small loss as investment property. However I too have read where the IRS sometimes objects to investment treatment of such a house. If you are ok with that, I would get some comps to try to acertain the true FMV on date of death.

[fliszt]

Time frame was

client passed away July 1, 2005. House was sold June 13, 2006. The son tried to sell house but home was on service road of a busy freeway so I guess people were reluctant to purchase. Price was dropped several times until it was sold. I'm not sure if son tried to rent the house out at some dollar amount or not. There are 2 sons but one just stayed on the side line. So I gave each a K-1 for 1/2 the loss.
Thank you all for input.
Larry