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Stepped up basis for property

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veschafer

Junior Member
What is the name of your state? Virginia. I am a new investor in real estate and I am trying to help some people who have found themselves in a sad situation. Sara and Tom are married. They had bad credit, so Sara's dad, Jim, bought their house with them. The deed had the names of Jim and Tom, as the grantees, but not as tenants in entirety. The mortgage was in Jim's name only. After 12 months, Jim died. Now, 6 months later, a total of 18 months after the initial purchase, Sara has breast cancer which has metastasized and they need to sell the house. It has gained $125k in value since they bought it. Is their basis the original purchase price, or did Tom receive a stepped up basis when Jim died?

Are there any other laws that would help them keep the total profit from the house so they can move to a smaller house, any catastrophic illness laws?
Valerie
 


abezon

Senior Member
If the house was held in joint tenancy, they got a full step up in basis. If the home was held as tenants in common, Tom kept his basis on his 1/2 of the house & got a stepped up basis for the inherited half. Also, since they need to sell for unforseen medical reasons, they may qualify for a reduced exclusion amount.
 

shortbus

Member
abezon said:
If the house was held in joint tenancy, they got a full step up in basis. If the home was held as tenants in common, Tom kept his basis on his 1/2 of the house & got a stepped up basis for the inherited half.
Why would Tom get a stepped-up basis on HIS half under joint tenancy. That is true under 1014(b)(6) for community property held in joint tenancy, but that's not the case here.

I would've thought the difference between JT & TIC for Jim & Tom is just the mechanism by which the transfer is made, not the tax result. I'd expect Tom to keep his basis in his half.
 

abezon

Senior Member
The full FMV of property owned in JTROS is included in a decedent's gross estate for estate tax purposes, so the heir (surviving JT) gets a full step up in basis. The community property twist is that property held in JTROS by a married couple in a community property state gets the same full step up in basis, but only 1/2 the FMV of the property is included in the decedent's gross estate.
 

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