Jainen, Bees & Kram Goldberg

[fliszt]

Jainen, Bees, Kram, since you responded to my original question re sale of 1041 residence, I wanted to share with you a conversation I had w/IRS this a.m. Called them to discuss my client's 1041 and after being bounced around for 50 minutes, ended up with an agent in tax law dept who specialized in Sched D. I told him the circumstances of client passed away, 2 sons sold house which took a year to sell and ended up with a loss compared to appraised value. I had found 2 court cases that allowed a loss on inherited residence and told agent the case names and dates. (Campbell vs Commr. 5TC 272 (1945), Carnick vs Commr. 9TC (1947). He said forgetting about the court cases, a personal residence is different than an inherited home. An inherited home is no longer considered a "personal residence" and does not go by the regs for personal residence. "Inherited residence is different than personal residence". He then referred me to Pub 551 Basis. Told him I have that pub and have read it. He then said "that being the case, you need not have called". You answered your own question.
So, i just wanted to share this info, (right or wrong). I intend to leave the 1041 Estate the way it was submitted and not do an ammendment if/until a formal notice is sent.
Thank you all for your input. You have no idea how much I appreciate every one on this board!
Larry M.

[Bees Knees]

I agree with what he said. I think, however, that certain issues could be raised. Number one, to claim a loss, you have to say the house sold for less than what it was worth. An appraisal can help, but the IRS could also claim that the reason you sold the house for less is because it wasn't worth what the appraisal said it was.

I'm not saying that is what they would do. But they could. In your case, with one year passing and the value of real estate dropping, I think you have a good argument to make. What would be difficult is selling the house in less than one year from the decedent’s date of death, and trying to claim the value dropped.

Also, I remember reading that the IRS will claim it is a personal residence if any of the beneficiaries continue to use it as such. So you really have to be careful not to let anyone stay in the house after Mom or Dad dies. It cannot be used for any personal purposes, if you want to claim it is investment property and deduct a loss on the sale.

[fliszt]

Bees

Thanks for reply. No, the kids did not stay at mom's house at all. They are both grown and have their own homes. I agree with you in as much as the IRS could pull all kind of stunts. Both the "kids" are my clients and knowing them, they would not want to put up a contest so at that time I would simply ammend the return. But, I have alerted them that their 2006 returns will probably be filed prior to any formal notice (if any) from IRS contesting the 1041 and they each have a $14,000 deduction to take from the K1's and to be aware repayment possibility plus interest. So, I think we'll just see what happens.
Hope you have a wonderful Thanksgiving in Minnetonka. Maybe dust off the golf clubs.
Larry

[jainen]

expecting the market to recover

This is worth thinking about, because property values are dropping all over the country. Assuming you had a genuine, licensed appraiser write up a formal opinion, he could still be wrong. The basic technique is to compare the actual recent sales prices of similar homes. Sometimes they have to look back three or six months to find good comps, and that might overstate the current value.

On the other hand, a trend is only general and doesn't necessarily apply to any one specific property. You could easily argue that you knew values had softened (sometimes appraisers will comment on it and make an adjustment). On the advise of your agent, you held the property as an investment expecting the market to recover.

[Joe Btfsplk]

Tax appraisal

Another appraisal that "might" be an indicator is the Ad Valorem tax appraised value.
The tax assessor sometimes appraises on the low side.

[fliszt]

Jainen thanks

for your post. Yes I agree. Also client did obtain a formal appraisel along with comps. One of the sons is a licenseed mortg broker and is very familar with appraisels and comps. And yes the mkt did soften but this paticular home is located on a very busy freeway which was very slow to sell. Hence the drop in price. I had to look back at client file and see that there was a $28k drop in price before it sold. So, that's a $14k loss for each son to include on their 2006 tax return. If this goes to the IRS review I think we have sufficient backup to make a strong arguement. If we loose, then so be it. At least I tried to represent my client with an honest arguement. Also I wanted all my collegues to know all this info in case it comes up with one of their clients. I know the court cases are old, but they're better than nothing. Plus, I found that's what was taught in an Estate/Trust seminar sponsered by Gear Up.
Thanks again and let me know if I may help you all.
Happy Thanksgiving everyone.
Larry M

[Jiggers]

Appraisal

[QUOTE=One of the sons is a licenseed mortg broker and is very familar with appraisels and comps. [/QUOTE]

The son didn't do the appraisal, did he?

[fliszt]

Good point Jiggers,

but no he did not. Independent appraiser. If he had, I would have balked at that. With one son, I'm very careful. The other son just stays away and out of the situation. Thanks for your input.
Larry