Inherited home in Louisiana

[Bizzalou]

What is the name of your state? Louisiana

My fiance and his sister have inherited a home worth approx $300,000 in New Orleans from their deceased uncle. His sister is the executor of the will, which bequeaths the home to her, with the instruction that she is to share the profits of the sale with her brother.

What would be the best way to handle this tax wise? Should she have the deed quit claimed to include him so that the proceeds from the sale are payable to both of them? She has been advised by one attorney to simply "donate" 1/2 of the sale to her brother once the property has been sold. What are the tax implications for these two methods and which one in your opinion is in my fiance's best interest?
Thanks so much!

 

[abezon]

1. Have an appraisal of the home's value as of the uncle's date of death.
2. The estate sells the house & files an estate tax return which probably shows a loss, since homes rarely appreciate enough in value to cover closing costs & commission.
3. In its final year of existence, the estate can pass the cash *and* loss along to the beneficiaries on the K-1s.
4. The beneficiaries don't put the cash on their tax returns, but they can claim the capital loss (up to $3,000 loss per year), reducing their taxes. I.e., they can have their money & get lower taxes, too!
5. If the estate won't be settled within 1 year, transfer title to fiance & sis, then sell. Once again, fiance & sis get to report the sale, claim expenses & probably post a loss on the sale. More complicated than method 4, since there are 2 title transfers & 2 signatures needed for sale.
6. Sis should NOT just donate 1/2 the proceeds to fiance, as sis will have to file a gift tax return.

 

[Bizzalou]

inherited home in Louisiana (2)

Once the house has been sold and the proceeds are split between my fiance and his sister, do they have to reinvest the money in real estate within a specific amount of time in order to avoid capital gains taxes? What exactly are the rules about that currently?

BTW...thanks you are most helpful!

 

[abezon]

If they want to try a 1031 exchange, they will need to hire a tax-free exchange facilitator. However, I doubt there will be any gain at all, so a 1031 exchange is probably not worth the cost ($1,000 or so). It's likely cheaper to pay the taxes on any small amount of gain.

 

[Bizzalou]

Actually I was referring to the money from the sale of the house, and not the capital gain amount. If they sell the house for $300,000, for example, and each receives half of that...are they going to have to re-invest that money in real estate (or anything else) to avoid paying any federal tax on it? And, if so, do they have a limited amount of time to do that?

 

[abezon]

Only the profits are taxable. If there's no profit over the $300,000 basis, the money is not taxable.