Permalink Submitted by Alan Spross on Fri, 2011-05-13 17:09
If the owner died in 2010, their is a choice to file under the old rules with the basis adjustment OR use the 2010 rules for no estate tax under which there is no basis adjustment. Since the vast majority of estates fall well under the federal exclusion of 5mm, the executor would probably elect the option with the basis adjustment so that beneficiaries are not stuck with a capital gain. Of course, in today’s real estate market the usual step up might well be a step down…..
Another debated issue is that an inherited home that is never used by the beneficiary is investment property, and given the expenses of the sale, there could be a capital loss. For example, if the value on the DOD is 100,000, the house does not sell and drop to 90,000 when it is finally sold and the commissions and other sale costs are 7,000, there is a potential LT cap loss of 17,000. This treatment has been debated, but the IRS has not ruled against it. Of course, if the heir moves into the house or otherwise uses the property, they are deemed to have converted it to personal use and cannot take a cap loss.
Permalink Submitted by tomd37 on Wed, 2011-05-11 12:21
Is the home the primary residence of the owner or is it under owned other conditions?
Tom D.
Permalink Submitted by Eric Woodfill on Thu, 2011-05-12 23:26
It was an inheritance.
Permalink Submitted by Alan Spross on Fri, 2011-05-13 17:09
If the owner died in 2010, their is a choice to file under the old rules with the basis adjustment OR use the 2010 rules for no estate tax under which there is no basis adjustment. Since the vast majority of estates fall well under the federal exclusion of 5mm, the executor would probably elect the option with the basis adjustment so that beneficiaries are not stuck with a capital gain. Of course, in today’s real estate market the usual step up might well be a step down…..
Another debated issue is that an inherited home that is never used by the beneficiary is investment property, and given the expenses of the sale, there could be a capital loss. For example, if the value on the DOD is 100,000, the house does not sell and drop to 90,000 when it is finally sold and the commissions and other sale costs are 7,000, there is a potential LT cap loss of 17,000. This treatment has been debated, but the IRS has not ruled against it. Of course, if the heir moves into the house or otherwise uses the property, they are deemed to have converted it to personal use and cannot take a cap loss.