Sale of house received from trust

[Gretel]

Just need some confirmation.

Revocable trust, T/P died last Sep., all trust assets past on to beneficiary almost instantly, including residence. Residence was sold in Nov. last year for $5,000 less than appraisal, which was done right after death.

My client is the one who inherited everything.

Since revocable trust property receives step up in basis and since house was sold soon after death I could claim $5,000 loss plus selling expenses? I am sure about selling expenses but not about the loss.

The sale happened in CA, so if CA has a twist to this scenario, californians please let me know. I talked to CA authorities and they told me CA follows Federal as far as step up is concerned.

[Brad Imsdahl]

The loss is allowed.

That assumes you really have a loss. IRS doesn't like allowing losses on the sale of inherited property. If you have an appraisal that says there was a $5,000 loss, then why couldn't you sell the house for what it was appraised at?

They probably won't do anything about this small of a loss, but FMV is a matter of opinion. IRS audits of estates often center on valuation issues.

[OldJack]

I agree that the beneficiaries probably have a deductible loss if there was an independent appraisal as of the date of death. It could be expected that selling where the beneficiaries wants immediate disposal could result in a lower selling price than fair market value.

I don't know anything about CA taxes, but most states require an income tax return, from non-residents, as a result of real estate sales.

[fliszt]

I agree

that you may take a loss. I ran into similar situation last year. Client passed away and son got a formal appraisel. Put house on market for appraised amount. Sat for 6 months and son lower price about $29k. I submitted 1041 with that loss.

[Kram BergGold]

File a CA return

Be sure to file in CA. They will be looking for a return.