Sale of an interest in inherited property

Submitted by Andrew Rogers on Mon, 2017-08-14 19:36

I have a client who received a piece of property along with his sibling. The sibling would like to buy him out of the property for his portion for a quit claim deed.

If he sells his portion, will there be any part of the sale that would need to be considered for taxes or would it be nontaxable? He will likely receive $15-20k for his interest in the property.

Andrew



Submitted by Alan - IRA critic on Tue, 2017-08-15 03:05

The client’s cost basis will be 50% of the value of this property on the date of death of the decedent. The amount he receives in excess of that cost basis will be taxable at the LT cap gains rate.

Submitted by Andrew Rogers on Tue, 2017-08-15 14:07

Will they need to get an official appraisal or are there other ways of arriving at the cost basis value? Andrew

Submitted by Ben Meyer on Tue, 2017-08-15 16:48

  • You might be able to avoid hiring a certified appraiser to determine the fair market value on the date of death if the property assessment is at 100% of market value in the county where the property is located.  Other than that, you might consider using some of the online real estate services and taking an average of three or so, but you need to find the historical values on the date of death.  Some online real estate sites that may cover the applicable geographic area are Zillow, Redfin, PropertyShark, Eppraisal, Homesnap, all of which are .com sites.  If the property value is high enough, an actual appraisal might be needed to satisfy the IRS or state tax authority.
  • This assumes that federal form 706 was not filed for the decedent.  If it was, the fair market value should be used as stated in form 706 or an accommpanying form 8971.
  • As Alan posted, long term capital gains tax would be due on 50% of any appreciation since the date of death.  Even if it has not yet been one year since the date of death, the gain on property received from a decedent is always considered as long term.  Also, if the amount received is less than the fair market value at the time of the transfer, the difference is considered a gift to the other sibling.  If the value at the time of transfer is lower than the value on the date of death no deduction for loss can be taken on a transaction between individuals, unless this is an investment prooperty.

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