resale of main home

[cashjunkie]

client died 04 same year main home was sold for 355K.
filed 1040 showing sale of home with cap gain of 7500.
no other income..no tax due.
taxpayer was holding mortg and after a few small payments
taxpayers daughter had to take back the house as no further payments
were made. house is now held by an estate account.
july 06 house is resold (new mortgage)
sold for 400K/ 20K down and 3000 per month
mostly interest.
ok....how do i get the 250k exemption amount back? file an amended 1040 for 04?
and include a copy of the foreclosure paper. for 06 i need to file a 1041 showing the
new sale and interest income less taxes and other exps. right? and can i take the
exemption again after i file the amended?? yikes.
any suggestions will be appreciated. thanks people.

[WhiteOleander]

client died 04 same year main home was sold for 355K.
filed 1040 showing sale of home with cap gain of 7500.
no other income..no tax due.
taxpayer was holding mortg and after a few small payments
taxpayers daughter had to take back the house as no further payments
were made. house is now held by an estate account.
july 06 house is resold (new mortgage)
sold for 400K/ 20K down and 3000 per month
mostly interest.
ok....how do i get the 250k exemption amount back? file an amended 1040 for 04?
and include a copy of the foreclosure paper. for 06 i need to file a 1041 showing the
new sale and interest income less taxes and other exps. right? and can i take the
exemption again after i file the amended?? yikes.
any suggestions will be appreciated. thanks people.

You do not need the Sec 121 exclusion amount. T/P died. He took the exclusion. The estate now owns the note. They will need to do a worksheet to figure their new basis after they repo'd of the house. Then set up a new amortization for the new note.

The estate has the stepped-up basis in the note it repo'd. The estate does not get the Sec. 121 exclusion. If the daughter does not use it as her residence, then it is investment property and there is no Sec 121 exclusion.

HTH

[BOB W]

Wow....

..... look at "White Oleander" go. Nice!!!!!!!

[veritas]

There is no

step up in an installment note at death. So that won't work.

[WhiteOleander]

step up in an installment note at death. So that won't work.

Yes that is correct. I didn't make my point correctly.

What I meant was that if the T/P had passed away before the sale, the estate would have received the house at FMV.

So, since it sold before the death, the FMV is contained in the note that passed to the estate. So, the beneficiaries are not losing any of that benefit.

Hope I am expressing this correctly.

[cashjunkie]

thanks for all your inputs

after recovering from cpadan's wet noodle lashing i looked thru
section 1038, called the IRS "complex issues" hot line (not much help there), and believe the correct action is to use the first note amount as the "reacquired" basis and just file a
standard 1041 with the installment sale. thanks again.

[Snaggletooth]

Rework

...let's unravel what's already been done -- and ease up on CPADan's wet-noodle lashing. We don't hear from CPADan as much as we like, but he is one of our more astute people.

Firstly, a review of your post says that taxpayer reported a $7500 gain. It does not state that the estate sold the property. We must conclude, therefore, that the property was sold before his death. If not, then that's just one more thing we have to unravel, right?

Assuming the above to be true, taxpayer made two errors. Firstly, the reported gain was really exempt since this was his main home. $7500 is not much of a gain on real property and I surmise that the reason only $7500 was reported is because he was using a 6252 (installment sale). There was, in fact, an installment sale according to your post, whether the installment method was elected or not.

Secondly, the taxpayer did not report any interest income. (from your post it states that the $7500 income was the only income reported) If he sold while he was alive, most likely some of the payments were made while he was still alive. Any interest received on these payments after his death should be income reportable by the estate.

Repossession of the property after buyer default is a transaction which occurred under the estate. The basis would need to be computed PRIOR to its being resold, and would consist of essentially the outstanding principle never received, plus any costs associated with the repossession. Since the outstanding loan was a monetary item, there would be no stepped-up basis, as its value to the estate was only the loan and not the property itself.

How do you get your $250K exemption back? Taxpayer should have taken it when he sold the house the first time. If sold in 2006 for $400K, the capital gain should be the difference between the $400K and the basis of the home while in the estate (above paragraph). My guess is that if few payments were received, the outstanding principle should be very close to the $355 (less down payment), and that you are much better off with this basis than a $250K exemption.

ALL of the above is predicated upon the death of the taxpayer occurring AFTER the sale, or the complexion of all my comments above changes drastically. If sale occurred after death of the taxpayer, then please ignore this post and revert back to previous discussion by the White Oleander.

[cashjunkie]

a little more on this

sold before death....355k minus 97500 basis minus 250K exempt = 7500 cap gain offset by standard ded and exemption = 0 tax due for 04. plus there were no payments made on the note anyway.
estate takes back the house/note (05)...new basis 355K +/- adjustments.
new note 400K(sold 06) estates cap gain 45K +/- adjustments.
will file with installment sale calcs.
thats my plan.
thanks again for response

[Snaggletooth]

Plan Looks Good

...as far as I know with the details I know. The $45K LTCG is reportable by the estate. Good luck.