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  1. #1
    Bob_Somebody is offline Junior Member
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    Selling Estate Property - Better to transfer to Beneficiaries First?

    What is the name of your state?NY

    I am executor of my parents' estate (mother passed away in late 2002 and father passed away in early 2003) and the estate is to be divided equally among my older brother, my younger sister, and myself.

    My parents' home, located in New York state, has been listed for sale.

    The total value of the estate is under $900,000, so estate and inheritance taxes are not in effect. But, the home was purchased in 1984 and has gone up in value by approximately $125,000. My parents had taken the 1-time exclusion when they sold their original home in 1987.

    So my question is whether the sale should be done within the estate or whether I should transfer the deed/title of the home into the names of the 3 siblings? I am concerned that if the sale occurs within the estate, that the estate will be liable for capital gains tax on the $125,000 in increased value on the home. If the home is transferred to the siblings, the basis would be what we've estimated for probate purposes and anything up or down from that would be our individual tax liability.

    Any insights or recommendations are greatly appreciated.

    Bob
  2. #2
    abezon is offline Senior Member
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    The amount they paid for the home is irrelevant. The house got a step up in basis to fair market value on the day of their deaths. (Whether this happened in 2 stages or all when the later person died depends on what state they were in, how title was held, etc. Consult a tax pro for more specifics.) The estate has the same basis in the house as the heirs would if the house were transferred to them directly.

    The estate should probably sell the house. After basis step up and costs of sale, the estate will likely have a loss, which can be passed through to the heirs on the estate's final return. The numbers are the same, but you only need the executor's signature for the sale, versus the 3 heirs' signatures.

    The estate has been open for over a year. Did you need to file an income tax return? (Form 1041) If the estate sells the house, it will need to file an income tax return to report the sale, basis, costs, and can deduct estate admin costs. See a tax pro who does estate income tax returns for more help.
    This post does not constitute legal advice, nor does it create an attorney-client relationship. Postings are based only on the information provided and you should consult an attorney in your area before relying on information contained in this post.
  3. #3
    Bob_Somebody is offline Junior Member
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    OK...thanks for the information and suggestions.

    No tax returns filed to-date. The will was not located until recently, but has been accepted by the surrogate's court into probate at the beginning of August. I've received an EIN from the IRS and their letter to me indicates that I have until next April to file the estate taxes.

    Regarding the exact step-up basis......does it have to be exactly on the last date of death, 6 months later (as I have read), or can the estimated value used in the probate filing be used as the step-up basis?
  4. #4
    abezon is offline Senior Member
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    It's date of death unless the executor elects the special valuation option of 6 months after death. This election is only available if things went down in value. Since there's no taxable estate anyway, the alternate evaluation date should not be a factor. There's no need to try to reduce the value of the estate to avoid estate taxes.

    You need to be as accurate as is reasonably possible. Spend some of the estate's cash & hire an appraisal for the date of death. A real estate agent should be able to do it for about $100.
    This post does not constitute legal advice, nor does it create an attorney-client relationship. Postings are based only on the information provided and you should consult an attorney in your area before relying on information contained in this post.
  5. #5
    rshap2l is offline Junior Member
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    Selling Estate Property - Better to transfer to Beneficiaries First?

    Abezon

    My siblings and I in the same situation as the person who first responded. The home was sold by the estate. However, our accountant said that we can't take the loss on the 1041 because it was a personal residence. I've done a little research and found SCA 1998-012 which agrees with our accountant, but someone on misc.taxes.moderated posted a bunch of citations to Tax Court cases that agree with you that the losses could in fact be taken. Just wondering if you are aware of SCA 1998-012, and whether you think its wrong. We're not sure what we should do.
  6. #6
    abezon is offline Senior Member
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    The conflict stems from the fact that there are 2 different answers to the question, depending on the facts. If the beneficiary lived in the house as his/her personal residence, the house is taxed like a personal asset. Gains are taxable & losses are not deductible. This usually happens when a child lived with the parent as a caregiver. If the house was not occupied by the beneficiary, the house is considered an investment asset (like stocks) and the loss from sale is deductible. In the final return for the estate, the loss is claimed on Form 1041 & passed through to the beneficiaries on the estate's schedule K-1.
    This post does not constitute legal advice, nor does it create an attorney-client relationship. Postings are based only on the information provided and you should consult an attorney in your area before relying on information contained in this post.
  7. #7
    VinceL is offline Junior Member
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    Where can I find the Tax Court cases referenced by rshap21

    Rshap21:

    Could you provide me with the misc.taxes.moderated link so that I can review the Tax Court cases that you referenced in your e-mail of 12/8/2004 at 6:27 pm?

    Many thanks!

    VinceL

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